Social Lending Back in the News
December 03, 2007
Social lending has been around for a couple of years now, but is back in the news with the launch of Zopa US this week. Typically, social lending or peer-to-peer lending has allowed borrowers to receive loans directly from other people and not banks or financial institutions. A reduction in loan fees and rates paid on loans have been the major benefit to borrowers who can also make a personal appeal for funds through social networking. Investors who are lending through these sites are claiming to be earning good rates of return with delinquencies not as high as predicted originally. The new site, Zopa US, has a different model in that lenders will open a CD at one of six credit unions and apply interest to specific loans, thus reducing the borrowing rates for certain borrowers while only risking their interest and not their principal which remains in the credit union CD. The lending sites Prosper.com and Lending Club offer a traditional matchmaking site where lenders select specific loans to fund and are at risk if the loan is not repaid. The Lending Club's site is quoting a rate of return of over 12% for their investors, but is unclear if that is taking into account delinquencies. Meanwhile, a recent report indicated that about 5% of Prosper.com loans were in default, meaning investors would have to be earning over 10% on their portfolio to overcome a delinquency rate that high and still beat rates offered on bank money market accounts on their investment.
More information about social lending sites here.