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Social Lending: Tips for People with Bad Credit

 Today, I want to talk about peer-to-peer lending. This website began as a resource for people with bad credit. It’s grown into a wide-ranging discussion of financial literacy, but I like to get back to our roots from time to time.

In the last few years, I’ve been troubled by the growth of these payday loan companies which dot the landscape in American cities and towns. Anywhere you go, it seems a cash advance place is sitting there. In strip malls across the United States, you’ll find payday loan stores next to shoe stores and 24-hour gyms and Quizno outlets. I understand that borrowers with bad credit ratings often don’t have a lot of choice. I want to give them ideas for consideration, though.

So let’s discuss P2P websites, which are a growing part of social lending. This idea is not going to work for everybody. But it should be researched as a preferred option over the cash advance, because most of those people are predatory lenders.

Bad credit peer to peer loans are a growing part of the economy, especially the online economy. When you can’t get a loan from lending institutions like banks and credit unions, you’re only good option might be to seek a loan from another private citizens.

What Is Peer to Peer Lending?

Peer to peer lending is also known as social lending, because the online version of P2P lending has a social networking aspect to it. I’m not saying you’re going on a social networking site and trying to collect money from friends on Facebook or followers on Twitter.

Business Connections through Peer Loans

We Talk about the Disconnectedness of Modern Society, But Humans Now Connect with More People and in More Ways Than Ever.

What I’m saying is you’re establishing important social connections with people who previously were complete strangers. The P2P connection establishes interpersonal relationships between two strangers in what would normally be the most stressful of tests between friends–the friendly loan.

Many of the social lending sites do introduce a social networking aspect to the transaction, realizing people who like one another and feel part of the same online community are more likely to pay back money to their online peers.

So when I said “private citizens” earlier, I wasn’t suggesting you borrow money from a friend or family member. That’s the quickest way to ruin a good relationship. What you need to know about is the online peer to peer loan services offer an alternative to putting strains on your normal sources of alternate money streams. You don’t have to go through the normal shame and humiliation of asking your friend, neighbor, or parents for a loan. You don’t have to put them in the uncomfortable position of saying yes or no to a loan request. You get the money from your online friends. With the website as the broker, you borrow money from social lenders with pre-arranged terms and conditions.

Online Peer to Peer Loans

This might sound like a crazy idea at first, but this industry has grown in recent years. Online peer-to-peer loan companies exist, such as the giant of the industry, Prosper, and niche rivals like Lending Club and Virgin Money. I’ve seen Prosper described as the “ebay of peer to peer loans“, so that should give you an indication that this is an established practice that more people are doing all the time.

When you’re reading about all of this, you’ll find exotic sounding terms like “disintermediation” and “crowdsourcing“. Disintermediation is simply the removal of intermediaries in the loan process, essentially removing the traditional lending institution. If you were going to a bank for a loan, that bank would draw funds from the savings or checking account of “John down the street”. They give John a little bit of interest on his savings, but charge you a much larger rate of interest for taking out the loan. When you get rid of the intermediary bank, this presumably lowers prices. Disintermediation is a fancy term for cutting out the middle man in a lending relationship.

Crowdsourcing P2P Loans

Crowdsourcing combines the concepts of outsourcing with the concept of the online crowd. The Internet can be seen as a vast crowd of people lounging around.

The Information Age is about asking the world a question and (hopefully) getting the best answer in reply. That’s what search engines do–or what they’re supposed to do. They supply the best answer and give that information to you as the #1 reply. That’s why Wikepedia comes up so often, because it displays the concept of Crowdwisdom. The more people given input into a question, the more likely that some consensus forms that’s close to the truth.

Remember on the old “Who Wants to Be a Millionaire” tv show, when the contestant would ask the crowd for an answer? If 80% of the crowd answered one way, it was almost always right. One person might remember the answer the wrong way, but that many people are almost certainly not going to remember the wrong answer in the same way. It’s not flawless, but it’s also a good indicator.

I’ve heard of people using crowdsourcing to raise funds for their publishing projects. These publishers ask their fans to help them raise money for their next project, usually by offering autographs or memorobilia in exchange for a donation (or loan) of a certain amount of money. I’ve never contributed, but I’ve gotten the email inquiries before. That’s what goes on with p2p loans–a person is asking the online crowd for a loan. Eventually, someone steps up and is willing to take the risk that you’re going to pay them back.

That’s why the social networking website factor is so key. These people are taking you at your word that you’re going to pay them back. The more they know you and the more they know about you, the more trust you foster. So Facebook and Twitter and Myspace do play a certain role in you receiving a peer to peer loan.

Peer to Peer Loans Lending Club

Many of the competitors service only a handful of countries, or at least focus on their home market. For instance, Virgin Money focuses on the United Kingdom, Australia, and South Africa. Since the peertopeer loan is going to be a different experience for people from different countries, I’ve decided to cover loans in several countries separately, to better help your research.

Examples of P2P Lending Clubs

It’s probably obvious to you that people seeking these loans are going to be people with no credit or bad credit. Though Prosper and Lending Club offer better rates than those usurous payday loan companies you’ve probably heard so much about, they aren’t going to compete with a standard lending institution like a bank. These are alternative methods for people who can’t get a loan through a bank–or at least can get a big enough loan through the conventional banking system. These are alternate steams of revenue.

Peer to Peer Loans US – Zidisha

Zidisha social lending is a nonprofit USA based P2P lending institution which offers what is called “microfinancing” opportunities. Zidisha is “helping entrepreneurship take hold“. Once again, the idea is that the traditional lending institutions are dithering about where to loan money, because they got burned making obviously bad investments. Since the traditional sources of revenue have dried up for many people, social lending allows people to microfinance their businesses by getting help from other people like themselves. I’ve already talked about Prosper dotcom and Lending Club, which are two of the leading P2P websites in the world.

P2P Financial – Peer to Peer Loans Canada

P2P Financial is the first Canadian social lending site. After getting started in Toronto, P2P Financial expanded its operations in September 2009 to Quebec, British Columbia, and Alberta. P2P Financial helps investors and institutions discover each other and trade opportunities through pooled assets for financing projects, business expansions, and start-up companies.

Funding Circle – UK Microfinance

Funding Circle and Virgin Money are important social lending sites in the United Kingdom. Virgin-Money offers loans to people in the UK, South Africa, and Australia. Funding Circle is a company established by a small group of British and Middle Eastern investors who grew tired of the stranglehold the British banking system holds on small businesses in the UK.

Since the five highstreet lending institutions lend 92% of the money to UK small businesses, Funding Circle is about offering alternatives to English and UK entrepreneurs. Zopa UK is another lending institution people in the United Kingdom might want to try. (Zopa has a “Zopa US” and “Zopa Italy”, too.)

Rate Setter is another major English-based social lending provider. Ratesetter allows lenders and borrowers to set their own rates through a competitive environment, much like eBay give buyers and sellers the tools they need to set their own buy and sell rates.

Lending Hub Australia

Lending Hub Australia is the first online lending service “marketplace” based in Australia. The Lending Hub person-to-person lending company is based in Sydney, Australia. iGrin is another person to person lending option for people over the age of 18 and living in Australia.

I-Lend – Indian People-to-People Lending Community

I-Lend is the first peer to peer loan website in India. The ilend company has the slogan “Loans for People by People“, which is a good description of the entire P2P industry. When I start listing people to people lending websites as far afield as Hindustan, it should become obvious that P2P is a huge and growing industry that is completely changing the world of personal finance–and even bad credit.

If you don’t qualify for a bank loan, I’m not saying you’ll always qualify for an online loan. But when you consider that peer to peer loans have grown from a $118 million industry in 2005 to a $5.8 billion industry here in 2012–despite a bad world economy–those with bad credit or no credit shouldn’t turn their back on this alternative personal financial opportunity.

What was true in 2012 is even truer in 2015. Since 2012, the loan rate has gone straight up. Lending Club and Prosper originated $6 billion between them by 2014. SoFi CEO Mike Cagney said his company would have $4 billion in originations in 2014, and he was right. This is an industry on the uptick. Learn about social lending and it might help you dig out of your own personal debt crisis.

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