Ok, I should clarify. If you really do need a loan, I probably won’t give it to you – at least not today – but the good news is that there are thousands of other “regular people” that will! If getting a loan from a bank or other lending institution is going to take too long or require too much paperwork then there’s still hope for you.
The answer is a new lending craze called People-to-People Lending, and here’s how it works:
Say I’m a small business owner who needs $10,000 to fund my new project (the max I can request is $25,000). Instead of going down to my neighborhood Bank of America I can log onto a People-to-People Lending website such as Prosper.com. There I can post a request for $10,000 along with the interest rate I expect to pay (7% in this case). After filling out a short questionnaire the site assigns me a credit score.
On the other side, people with a little cash to burn log into Prosper.com and start searching for someone to loan money to. Why? Because a 7% return is better than the bank. So Joe Moneybags searches the list of people like me searching for some cash, notices my request for $10,000 and sees that I have an AA credit rating – all in all a pretty good deal for Joe. However, he’s a smart investor and is still a little worried about me defaulting on the loan so he decides to lend me $5,000 of the money I need. At the same time, several other investors decide to lend me $1,000 each until I reach the $10,000 I need.
I then have three years to pay off my new loan with automatic bank withdrawals available. And if I default? Then Prosper.com reports my default to the credit agencies and turns my case over to a collection agency.
I’m a fan of Peer-to-Peer Lending in part because my grandfather used to do something similar when he was alive. He recognized he was better off than many people and willingly loaned many people money – even complete strangers – and gave them a fair interest rate.
The idea of Peer-to-Peer Lending has been really taking off lately not only because people who normally wouldn’t be able to get a loan are fulfilling their dreams, but because the lenders are making a great return on their excess cash.
UPDATE: I’ve received an alarming number of personal requests from readers who believe that this post is an offer from me to lend money. Just to clarify, I am not offering to lend people money. If you are in a situation in which you need a loan in terms that a bank is not willing to give you, please feel free to visit one of the peer-to-peer lending sites such as www.Prosper.com.