"Peer-to-peer" lending concept: what are your thoughts?
This is not an advert, but I just came across www.zopa.com.
Similar to 'micro-lending' in developing countries, but for places like USA and Europe. As far as I know this is a new concept that provides a meeting forum for people who need to borrow and people who potentially could lend to them. Cuts out banks, though the company apparently conducts 'credit checks' on the borrowers, and charges 0.5% p.a.
Over a certain amount (US$1000) they spread your loand over 50+ debtors. Average rate of interest is apparently 7.5%, after bad debts and fees.
It's an intriguing idea, but would be interested to see people's thoughts on it here.
Answers
3970 points
EthanR answered one year ago …
Moresby, I have to question why people with supposedly "good credit" would even need this service. I would think they would either have money in savings, or could borrow off a HELOC at a cheaper rate. The idea of lending money to strangers just gives me hives! But then again, that's what we do when we buy bonds, so who knows? Interesting idea. Also, you didn't say... what happens if you don't get paid back? What recourse do you have?
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EthanR answered one year ago …
Moresby, I just went to the zoba.com website, should have done so before answering the first time. Apparently an "investor" gets a CD rate that is somewhat similar to any bank, and by doing so that helps a borrower to get a lower interest rate on their loan. To me it looks like a web site that is better financially for borrowers than for lenders, but there is a social element to the idea as well. One can help whoever they choose.
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951 points
Grudun answered one year ago …
I am currently a lender on one of the first sites prosper.com. It is a great for both lenders and borrowers.
Most of the borrowers are in possition where they can't or don't want to deal with banks for the money and don't have, don't want to use, or can't use home equitity lines to get the money. Borrowers are generally trying to open a bussiness(extremely hard to get money from a bank), consolidate debts(also hard because of the high interest demanded on signature loans and is appealing because their is a short term for payoff, 3 years at prosper), dealing with an unexpected expense, or are tired of dealing with banks and would rather pay real people the interest(with a small cut for the site) instead of the big horrible impersonal bank. The borrowers also have a medium to tell their story and provide additional information to explain a small negative mark on their credit that has been resolved and just hasn't updated or explain their temporary setback which would not be considered relavant at a bank.
Lenders get a good deal but it requires a little more effort. If lendors are willing to do their due dilligence(no different than any other investment) then they can find loans that pay a high rate of return(I currently get about 14.5% before fees, about 13.8 after the site's cut) and low risk of default. However if lenders don't put in the time to find good listings they can LOOSE ALL OF THEIR CAPITAL. As with any investment you can trade greater risk for greater reward(some users on prosper are making more than 20% on their loans without default, see ericscc.com for a prosper stat site).
For asset allocation I use it as a mid term bond fund keeping it to a small portion of my portfolio. I see it as a little bit of a hobby sorting through the listings to separate the wheat from the chaff and take a break from stock research(everyone needs a little break sometimes).
699 points
7million7years answered one year ago …
Access to MicroLending in developing countries has proven to be life-changing for those borrowing (e.g. the artisan struggling to buy the beads that they need to make hand-beaded jewellery). It is also surprisingly low risk, and very profitable, for the lenders - usually institutional ... a number of who are publically traded.
If you want exposure to this sector, buy stocks in one or two of these.
However, if you want to BE a lender, I would advise against it ... having a finance company in a very low-risk sector, I can let you know that assessing risk is critical and even then you can be exposed to loss (I am about to take $20k 'hit' from a known con-man who used a 'front' to get past our usually stringent credit-checking process) ... what will you do without access to good credit and collection tools?
265 points
MaverickInvestor answered one year ago …
Zopa has been around a good while now and is a very successful concept.
I tried to be a lender and a borrower there at different times but, for some reason, I can never get past the online checks, and I've never taken the time to go through the off-line process.
I really like the idea of cutting out the banks. The banks have had it all their own way for far too long.
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