Earlier this year I wrote a post about the peer lending sites that I had stumbled across (“Be A Bank?“). I was just reading another article about this concept and must say that it still very much intrigues me.
Interesting Concept
The general concept really fascinates me. To me it’s minimalist banking at it’s finest. Before about 50-75 years ago, this was the only way that the average Joe borrowed money. Hit up friends and family. Today, the Internet and the social networking/media idea has brought this idea back to life.
From a very simple standpoint, it just connects people who need money with people who have some money to invest. There’s no middle man who gives you a pittance for giving them your money (is a less than a percent really anything for your hard earned money?).
The lenders are also able to diversify. The minimum investments in the individual loans is usually somewhere around $25. This allows you to buy into many loans and spread your risk. That means that if one of the loans defaults… you’ve only invested a small amount in that one and hopefully your other loans are still performing.
Good returns
If you look at the averages that are being claimed by two of the big providers (Prosper and Lending Club) the return is pretty decent (in the 7%-10%) range. Obviously, the risk is significantly higher than your savings, money market, or CDs. You’d definitely have to decide if it was worth it to you or not.
What do you think? Have you tried social lending? Pros and cons?
Did you enjoy this article? Please subscribe to Refocusing Technology to receive all the FREE updates!
Twitter
Facebook
Buzz
LinkedIn
RSS