P2P lending, also known as peer to peer lending, person to person lending, or social lending is a financial lending that occurs directly between peers or persons without any intermediate third party service or financial entity. When you lend some money to your friend or a family member then its a kind of social lending.
There are many social lending websites that work as a lending network where people can get or lend money. The lending amount or loan for a single individual is usually funded by combining multiple lenders who contribute a small amount each.
On these social lending networks, borrowers benefit by securing loans at a lower interest rates compared to banks. On most of these sites, borrowers’ personal information is also not disclosed. Lenders can only see the credit profile of the borrower. The credit profile can include things such as home ownership, monthly/yearly income, total credit lines, credit balance, business details, debt to income ratio etc.
Because of low interest rates, social lending sites or p2p sites can also be used to consolidate the debt from high interest credit cards.
Lenders also benefit from these sites as they get a good return on their investment which increases with the risk associated with the loan. A good strategy is to fund multiple high risk loans with small amounts thus diversifying the associated risk.
Top P2P Lending or Social Lending Websites
Kiva – Kiva is probably the most popular social lending website. Its a non profit p2p micro lending website. The mission of Kiva is to help poor entrepreneurs by funding their business ideas.
Kiva partners with multiple social non profit micro finance entities and volunteers to find and create loan listings for prospective entrepreneurs from poor countries. Lenders can then search through these listings and fund them.
Prosper – Prosper is the biggest social lending website in US. Loans funded on Prosper are basically unsecured 3-year personal loans. A borrower must first create a listing on Prosper which included the maximum interest rate he can pay, why he needs loan and so on.
Lenders can then search and fund the borrowers based on their profiles. Prosper also offers automated plans which offers automatic funding based on predefined filters like default risk and bid yield.
GreenNote â€“ GreenNote is a social lending website for students around the world. A student who needs funding to pay for tution fee in school can create a profile on GreenNote. Lenders then fund this loan, and when fully funded, this money is directly sent to the respective school.
The student has to start repaying the loan after leaving the school. Students benefit with this p2p lending website as the interest rates here are very low.
LendingClub â€“ LendingClub offers various personal loans like car loans, green loans, debt consolidation loans, loans to pay off credit cards, business loans etc.
LendingClub do not accepts all applications. It screens prospective borrowers based on some internal criteria and rejects most of the applicants. However, once a borrower is selected, it provides various loan options.
VirginMoney â€“ VirginMoney is a very different kind of social lending service as it basically only acts as negotiator. If you want to help someone with some money but you also want to make sure that he pays you back, then VirginMoney will help you with all the legal work and payment handling service for a flat fee of $99.
If you know about any more P2P lending or social lending websites, then do let us know using the comments form below and we will update the list above after reviewing the website.