The 'brave new world' of peer-to-peer lending
Posted
Jan 17 2008, 04:05 PM
by
Karen Datko
Call it "peer-to-peer" or "social" lending, the online enterprise of loaning money to others outside the confines of a brick-and-mortar bank is taking off. The Silicon Valley Blogger says this "brave new world" is expected to grow by as much as 800% in the next three years, and she plans to be a part of it -- on the lending side. Her post at The Digerati Life explains how Prosper.com, Lending Club and other P2P services work, and how investors can reduce the risk of losing money.
The sites allow you to examine the credit histories of borrowers, but you can -- and should -- do additional research, SVB says. She writes: "Lenders, particularly, can do their due diligence by corresponding beyond the Internet, for instance, by contacting borrowers via the phone or e-mail. As a lender, you may want to do as much research as you need to feel comfortable about the process." You also can diversify the types of loans you make, or set a higher interest rate to give you some cushion in case one of your borrowers doesn't pay.
Our partner blogger The Dough Roller writes that he had some concerns about making loans through Prosper.com but increased his comfort level by using the Portfolio Plan. He explains, "Rather than bidding on individual loan listings, you divide your investments into one or more buckets of loans based on the borrowers' credit grade."
