Peer-to-peer lending can be win-win for borrowers and investors
With banks slamming their doors in the faces of ordinary people who want to borrow money, our peers are starting to take up some of the slack. In this case peers may mean friends, family or even perfect strangers, any of whom can go to a web site and bid on how much they'd like to lend you and what rate they'll charge. Such peer-to-peer lending (PTPL) has grown from $282 million in loans in 2006 to a projected $3.1 billion this year, according to The Washington Post, and estimates suggest it will reach $5.8 billion in 2010. Should you surf the PTPL wave?
Before answering that question, let's discuss how PTPL actually works. One such PTPL service, Lending Club, lets investors pick borrowers -- who must have FICO credit scores of at least 660 out of 850. Investors, who act as lenders, scrutinize the same kinds of details that banks do, such as the borrower's credit score and ratio of debt to income. And they can invest as little as $25 in loans which average $6,000 to a small pool of borrowers at rates between 12 and 13 percent.