P2P Sites Can Formalize Personal Loans Between Family Members

[Jan 6, 2009.]

 

Last week we looked at how regulators are taking more notice of how peer-to-peer (P2P) lending online is allowing people who need personal loans to get the funds they need without using banks. Even people who plan to borrow money from family members can benefit from using a site like Virgin Money to structure their personal loans.

Loan volume at Virgin Money has jumped 75% during the past year, according to an article in SmartMoney. The article also said that sales of do-it-yourself loan kits rose 30% at legal publisher NoLo.

According to SmartMoney, "Even among the people who love you most, it turns out that a promise and a handshake just aren’t good enough today. In these tough times, friends and family are willing to help out—with strings attached. While they’re not looking for a pound of flesh, a growing number are insisting on promissory notes, payment plans and regular credit reporting."

Although there are no solid figures on the total amount of undocumented loans made between family and friends, SmartMoney says one estimate puts that number at about $90 billion. Because the economy continues to struggle and banks are rejecting applicants left and right for personal loans and other types of financing, the potential for new business at Virgin Money and other P2P sites is huge.

Anyone who plans to use one of these sites as a lender should be cautious since having a contract doesn’t guarantee that a friend or family member will pay back a personal loan. The best rule for people to follow when considering becoming a lender is to never lend money that they can’t afford to not get back.

Virgin Money isn’t the only site that structures online personal loans. For people hoping to tap relatives and friends for money GreenNote helps set up student loans, and Lending Club encourages people to use their Facebook network to find funds.  P2P lending is expected to be 10% of the world’s loan volume within the next three years, according to Gartner, a research firm.

 

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.