Top 5 social lending sites that knock out the bank middle man
Banks are tightening their purse strings right now which essentially impacts anyone who borrows money. So how can individuals and businesses continue to source the funds they need to accomplish their goals? Social lending.
There are lots of options, but these are some names that have been in the social lending space for a while and seem to have found a working business model. Note that some sites act as a contract administrator, only creating loan documents for you to use with people you already know. With those sites, the idea is to create a legally binding contract that helps preserve friendships and families by letting everyone know where they stand upfront.
The List
Based in the U.K., it provides a marketplace for lenders and borrowers to make transactions. Zopa allows lenders to specify their rates and adds a twist by allowing other lenders to join in later with potentially lower interest rates (the net effect being an overall lower interest rate loan). It’s a “charitable” twist on the auction style interest rate competition Prosper uses.
Based in San Francisco, CA and provides a social lending marketplace with some similarities to Zopa. Prosper seems to emphasize credit scores more and puts a focus on communicating how it enforces loan agreements. Prosper loans are typically a maximum of three years, and the company employees a reverse dutch auction at the end of each transaction in an effort to make loan rates more competitive.
The story behind this company has an interesting twist. Its original success began as a social lending application on Facebook and now the company operates independently. In sharp contrast from the other sites reviewed here, it isn’t currently accepting new lenders. Apparently the company is registering Member Payment Dependant notes with the Securities Exchange Commission totaling up to $600,000,000 and won’t accept new lenders until that pulls through.
LendingClub advertises a fixed 7.88% loan on its site, though that certainly depends on the borrower’s credit. Overall the application process seems much simpler than with Zopa or Prosper, though there’s less opportunity to market your needs.
Focuses on the student segment, and it blends traditional social lending with contract creation. Its unique spin is a 1-to-1 match. Every dollar a friend or family member contributes it will match, which could add up quickly.
If you know people with some spare cash this is the perfect solution. Everyone else check out the sites above. LoanBack essentially provides a legal platform for the borrower and lender to create a formal agreement. It reassures the lender and encourages the borrower to accept responsibility for taking on the debt. Specifically LoanBack helps the two parties organize payment schedules, late fees, multiple borrowers and lenders, along with a variety of other contingencies. But, with this sort of social lending, finding the people to front the money is all on you.
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December 26th, 2008
Nice write-up, but you should mention that most social lending sites are currently on pause due to registration filings with the SEC. Lending Club is the only lender currently making new loans in the U.S. Virgin Money is an alternative, but it’s BYOL (bring your own lender!)
January 10th, 2009
Great write up. Of the ones you mentioned, only Lending Club seems to be open.
I also found this idea on Change.org:
http://www.change.org/ideas/view/solving_the_credit_crisis_from_the_bottom_up
May 4th, 2009
This is one of those “get rich placing google ads” sites. Typical!
July 28th, 2009
Nice write up. Since this article was created a new site that might be considered a better alternative to LoanBack has been launched. In addition to having all of the same features as LoanBack there’s an additional loan payment tracking tool that helps track payments including helping adjust for over and underpayments providing a more complete solution for the do-it-yourself customer.
Disclaimer: I am the founder of LendingKarma.
September 13th, 2009
In the UK the regulations are different to the US. This makes it easier to operate in the Social lending environment. Bigcarrots.com use the social lending model but for businesses, their crusade is to help ordinary people back British businesses. Similar model to Zopa but loans are from 3 months to 36 months so business can effectively replace their bank overdraft. You have to be a UK resident to use the site.