Online P2P Personal Loans Are Popular but Face Regulators

[Dec 29, 2008.]

 

The amount of money being borrowed through online personal loans could total nearly $6 billion by 2010, according to CBS News. Online lending sites like Lending Club and Virgin Money are growing because more people are seeking peer-to-peer (P2P) loans as an alternative to applying at banks.

Many banks have tightened lending standards so much that even people with good credit are having a tough time obtaining personal loans. Peer-to-peer lending sites have stepped up to the plate during these tough economic times.

Virgin Money allows people to set up loans with friends and family members. Even people with bad credit can obtain personal loans as long as they find someone willing to help them out. Borrowers have flexibility in structuring loan repayments.

People with bad credit won’t be able to obtain personal loans on Lending Club. The site requires borrowers to have a FICO score of at least 660. Borrowers list their loan request on the site and lenders indicate how much of it they are willing to fund. Each loan request is assigned a grade that determines the amount of interest to be charged. Lenders and borrowers don’t have to know each other.

As P2P lending has gained users, regulators have taken notice. No. 1 P2P lending site Prosper is currently in a quiet period while it registers with the SEC, which said the site was selling unregistered securities. During this quiet period, Prosper isn’t allowed to make any new loans. Lending Club has already registered with the SEC.

In the long run, peer-to-peer lending will only grow more attractive as an alternative to traditional banking—especially if the current credit crisis drags on for a long period of time. However, lending money through these sites isn’t without risks since some borrowers do default on loans.

 

 

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.