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Borrowing and Lending

You have to love the banks. They have beautiful marble interiors, helpful tellers, and those great ball point pens attached to chains. Many of our local banks have "savings" accounts that pay about 2% interest. These same banks have loan products (including credit cards) which can charge in excess of 30% interest. It's all fair enough. After all, someone has to pay for all that marble. This leads to a question. Is it possible to cut out the bank and get better rates for both the lender and borrower?

Peer-to-peer lending

Enter peer-to-peer lending. Borrowers decide how much they would like to borrow and the maximum interest rate they are willing to pay. Lenders then "bid" for the loans.

Peer to peer lending Groups


One peer to peer lending site is Lending Club . Lending Club is a social lending network. Borrowers with good credit can get personal loans at interest rates they find more attractive than those available from conventional funding sources such as banks and credit cards. Lending Club issues notes that correspond to specific borrower loans. The stated interest rates on Notes range from 6.69% to 19.37%. The newest lending site to enter the US peer-to-peer market (after a successful stint in the UK) is Zopa Personal Loans. Zopa offers lenders federally insured savings deposits.

Peter Planchet and Marcella

Marcella lives in Fort Myers, Florida. She purchased a used car. Since she had no prior credit, the bank lent her money for 25%. Peter Planchet lives in a small town in the North East where he found a money market paying 5%. interest. Dr. Planchet took some money out of the money market and lent it to Marcella at the rate of 15%. Marcella saves money while Dr.Planchet earns money. Happiness prevails.


If a borrower seeks $5000, there is no need to find a lender to loan $5000. Instead, there are many l enders that will loan small amounts (typcially $50 to $250) until it adds up to $5000. This helps spread the risk around. Lenders lower their risk by lending only small amounts at a time in a process known as microlending.



The main risk to lending via a peer-to-peer network is that loans may default. This is the same problem as a real bank. Some have argued that people seek peer-to-peer loans as a last resort. Therefore the borrowers may be less reliable or about to declare bankruptcy.


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