Money 'a few keystrokes away'
2007-09-21 09:31
New York - Never lend money to a
friend, the old saying goes, but what about lending to a
stranger a few keystrokes away?
The emergence of online communities has prompted some
people needing funds to pay off debt or pursue their dreams to
turn to cyber-friends to help them, rekindling people-to-people
lending and investment opportunities that sidestep banks.
The latest website designed to bring borrowers and lenders
together is Lending Club (www.lendingclub.com) which was
launched this month after originally being introduced as an
application in the popular online social network Facebook.
The site makes its money through a fee for arranging and
servicing the loan instead of profiting on the rate spread.
"It's a way to get back to what lending was before banks
came in, people lending to people," said Renaud Laplanche,
chief executive and founder of Lending Club.
A longer running site, Prosper (www.prosper.com), has
organised $85m in loans since launching in February 2006
and has over 400 000 members. The average loan is $6 000.
Borrowers want the money for various reasons - to pay off
debt, start a business, fix up a home, for a wedding - and
often make emotional appeals accompanied with photographs
showing their families or themselves.
Some appeals are more unusual. One Lending Club member
wanted money to build a recycling plant in Uganda while another
was chasing a dream of becoming an underwater photographer.
Debts and dreams
More typical was a borrower on Lending Club describingherself as "drowning in debt" after her college years. She was
seeking $5 000, offering to repay at a rate of 13%.
A Prosper member was seeking to borrow $5 000 at 21.50% after losing his "dream job".
"I refuse to let this experience rule me and so my goal is
to repay all of my debts and launch a marketing consulting
business - this way I take charge of my destiny!" he wrote.
Laplanche said rates varied from 7.12% to 17.86%
but most loans had rates between seven percent and 13%. The processing fee applied by the site ranges from
0.75% to two percent.
The average rate on a standard credit card is 13.48%, according to Bankrate.com.
Borrowers on Lending Club are screened and are only
eligible if they have a FICO (Fair Isaac Corp) score of more
than 640, which weeds out subprime borrowers. The site also
verifies employment and income.
Borrowers can loan between $500 and $25 000 via the site.
Lenders can view profiles to see details including college and
work details, as well as hobbies and interests, in addition
financial details such as their debt to income ratio.
"Now with the internet and especially with social networks
like Facebook, the role of the bank as an intermediary isn't as
useful anymore," Laplanche said. "A lot of it can happen more
efficiently and with much less bureaucracy and less friction."