Social Lending: Web 2.0 Social Networks meets Financial Services

Across the world social lending is being utilized as an alternative to traditional bank and personal loans. Social lending sites connect individual lenders and borrowers through a peer-to-peer network that is streamlined, efficient, legally formatted, profitable, and most importantly - helpful. Social lending sites provide an opportunity to reduce loan rates and loan costs for borrowers and provide a rate of return for lenders which may beat investment alternatives. Money-Rates.com reviews the latest social lending sites below:

Social Lending Site Reviews: Prosper, Zopa, Lending Club, Globefunder, Virgin Money, CommunityLend, Loanback, Fynanz

Richard Branson began his music and business empire with a loan from his aunt so his new venture Virgin Money is close to his heart. This site manages business loans between relatives and friends while providing flexibility to both borrower and lender to negotiate their own loan terms. An exciting new service offered by Virgin Money is the Student Payback program which commits students to participating in the loan repayment program of private or federal loans with e-mail reminders, electronic debits, and documentation of the loan and repayment process. Parents can set generous and forgiving terms on the loan to allow their children flexibility in paying off their portion of the loan.

CommunityLend is the first social lending site based out of Canada. Currently in Beta, lenders and borrowers can sign-up at the site for more information.

Prosper has 830,000 members and offers loans from $1,000 to $25,000. Prosper has placed $178 million in loans in their relatively short history. If you are a borrower and your loan is funded, you will be charged a percentage of the amount borrowed (1% -2%) or $25, whichever is greater, depending on your credit grade. Borrowers must have a credit score of 520 or higher and pass identity verification and anti-fraud checks). All Prosper loans are 3-year fully amortized loans with a fixed interest rates. Prosper is not accepting new lender applications until their securities registration process is complete.

At The Lending Club borrowers complete a loan request and instantly view the interest rate at which they pre-qualify. A minimum credit score of 640 is required. Borrower processing fees range from 0.75% (A) to 2.00% (G). Lenders pick a suitable portfolio of loans to fund. The average portfolio performance according to the Lending Club site is 12.25% and the average borrowing rates range from 7.88% (A1 credit score) to 18.99% (G5 credit score). Lending Club is not accepting new lender applications at this time.

GlobeFunder is a secure, online lending marketplace where Borrowers are in control. By eliminating the traditional middleman, this unique lending platform offers lower costs to Borrowers for fast, efficient loans. Borrowers are able to post a loan request on the GlobeFunder marketplace for the amount you need, at an interest rate and repayment schedule right for you. Lenders must apply with GlobeFunder Ventures to become approved to fund loans on Globefunder. Fees are charged on loans set-up with ACH payment at 1.75%. Globefunder expects to service borrowers in all 50 states by the end of 2008, but are currently only licensed in the states of Alabama, Connecticut, Florida, Georgia, Hawaii, Indiana, Louisiana, Michigan, Missouri, Nebraska, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, and Wyoming.

LoanBack creates a customized promissory note and payment schedule for loans arranged privately. Legally binding in all 50 states. Fees for loan forms range from $9.95 to $14.95.

Fynanz is a social lending site designed specifically for college students. Students in need of education financing creates a loan request on the Fynanz website for their loan. After the request is approved by Fynanz, the listing is posted on an online auction on the Fynanz site. Individual lenders who are also members of the Fynanz community, such as family, friends, alumni and others, can the bid to lower the financing costs for the students. The financing rate is set by a Base Rate based on the 1-month LIBOR (currently 3.62%) and a margin rate set by the online auction (ranges from 2.50% to 7.50%). Fynanz charges a 1% annual servicing fee for current loans. UPDATE: CURRENTLY FYNANZ IS NOT ACCEPTING NEW LENDER APPLICATIONS

Loanio is a new peer lending site offering both a lending and borrowing platform. Visitors can check the interactive map at Loanio.com to find out if their state has certain restrictions for the amount and interest rate on their loans. Nearly all Loanio loans are between $1,000 and $25,000, but lenders can fund a loan partially for as little as $50. 

* The accuracy of the Information above is not guaranteed and should not be construed as investment advice.

Posted 5/8/09