Due to the recession many Americans are searching for various ways to get extra money to make ends meet, get out of debt, or buy items that they need or want. Many Americans now have bad credit because they got behind on their bills due to sickness, unemployment, reduction in hours or living above their means. Unfortunately because of their bad credit they can no longer go to traditional banks and get a loan or get approved for credit. Another option is peer to peer lending, social lending or person to person lending. Borrowers and lenders transact business without using a traditional bank over the internet.
Peer to peer loans can be obtained from several companies such as: Prosper (formerly Circle One), Zopa, Virgin Money, Lending Club that is available on Facebook, eBay's Microplace that provides (loans to people in other countries and PeerMint that provides loan to people in Canada, Australia and New Zealand.
They offer products similar to banks such as: are real estate loans, personal loans, business loans, debt consolidation, loans to pay off credit card debt and more. The average loan amount approved is $7,000. The lenders make money on loan origination fees instead of interest payments so they constantly need repeat or new users. Americans make 6 million peer to peer loans a year.
Loans are based on collateral, credit score and personal assets. Owning property and having equity in a property can be used as collateral for a loan. Your credit score has to be at least 620. Your chances of approval are also better if you have some money in the bank. If you default on the loan you lose your equity and/or your money in the bank.
There are two main types of lending models used: marketplace and the family or friend model. The marketplace model enables lenders to located borrowers and vice-versa. This model connects borrowers with lenders where the lender that is willing to provide the lowest interest rate wins the borrower's loan. The family and friend model is based on borrowers and lenders who already have a business relationship or business co-workers who formalize a personal loan.
Many of the sites password protect their data and are PCI compliant. If a lender suspects that one of their loans belongs to a person who has committed ID theft, they will work with law enforcement authorities to track down and prosecute anyone who has committed identity theft. However, there are risks to the lenders and borrowers both in terms of loan defaults and fraud.
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