One recent trend in the realm of personal loans is the development of what is known as peer-to-peer lending. Coming in tough economic times, these types of personal loans offer a way of side-stepping traditional lending outlets by setting up a loan with one of the person-to-person lending networks that have sprung up over recent years. The loan business is booming these days with the advent of the cash advance or payday loan, but such loans carry the weight of heavy fees which result in exorbitant APRs. Also, traditional sources of money, such as credit cards or unsecured personal loans carry high rates of interest as well, to say nothing of all the fees.
Today, those who need a personal loan, who own a home with enough equity could obtain one in the form of a home equity loan. However, if you don’t own a home (which may include more and more folks who recently lost their homes to foreclosure), one attractive alternative has been online offers from peer-to-peer lending networks. This method of lending money allows borrowers to side-step banks and borrow money directly from individual investors through a peer-to-peer lending service. It effectively eliminates the middleman or institution and returns lending to its earliest societal forms; simply, the one with cash lends it to the one in need.
Growth – Amazingly, lending in this manner grew exponentially. According to a report in a Wall Street Journal affiliate site: “…in 2005, there were $118 million of outstanding peer-to-peer loans. In 2006, there were $269 million, and, in 2007, a total of $647 million. The projected amount for 2010 is $5.8 billion.”
Attention – Such growth attracted the attention of the Federal Reserve Bank of San Francisco. A 2008 meeting held between community leaders, investors and the largest peer-to-peer lending program in the world at the time, occurred to discuss this innovation and the implications it had for potential community development. The conclusion was that such lenders provided a service to the community and it was important that “… the community development finance industry be aware of this emerging technology.”
Problems – Such lending also attracted the attention of the United States Securities & Exchange Commission. In an effort to get a regulatory handle on the growing industry, the SEC declared that peer-to-peer lending was by definition, activities creating securities. If companies were not properly registered, they violated the Securities Act. Renaud Laplanche, a founder of one of the lending organizations views such SEC registration as providing credibility to the industry. Despite its quick start and early problems, peer-to-peer lending is here to stay.