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Social Lending: Web 2.0 Social Networks meets Financial Services
Across the world social lending is being utilized as an alternative to ‘traditional’ bank and personal loans. Social lending sites connect individual lenders with individual borrowers through a peer-to-peer network that is streamlined, efficient, legally formatted, profitable, and most importantly - helpful. Social lending sites provide an opportunity to reduce loan rates and loan costs for borrowers and provide a rate of return for lenders which may beat investment alternatives. Each site runs a different program with different features and different levels of risk. Money-Rates.com review the latest social lending sites below:
Social Lending Site Reviews: Prosper, Zopa, Lending Club, Globefunder, Virgin Money, CommunityLend, Loanback, Fynanz
Richard Branson began his music and business empire with a loan from his aunt so his new venture Virgin Money is close to his heart. This site manages business loans between relatives and friends while providing flexibility to both borrower and lender to negotiate their own loan terms. An exciting new service offered by Virgin Money is the Student Payback program which commits students to participating in the loan repayment program of private or federal loans with e-mail reminders, electronic debits, and documentation of the loan and repayment process. Parents can set generous and forgiving terms on the loan to allow their children flexibility in paying off their portion of the loan.
CommunityLend is the first social lending site based out of Canada. Currently in beta, the site is expected to be operational in the summer of 2008.
Prosper has 730,000 members and offers loans from $1,000 to $25,000. Prosper has placed $151 million in loans in their relatively short history. If you are a borrower and your loan is funded, you will be charged a percentage of the amount borrowed (1% -2%) or $25, whichever is greater, depending on your credit grade. Borrowers must have a credit score of 520 or higher and pass identity verification and anti-fraud checks) Lenders earned an average annual return of 6.73% on AA-rated loand and 5.64% on A-rated loans from June 1, 2006 to May 13, 2008. Borrowing rates can be as low as 7.68% on Prosper.
Currently operating in United Kingdom the company began operations in the United States December 2007. Zopa takes lenders who have placed one year CDs at participating credit unions and allows them to bid down loans placed at the same credit union. Zopa charges borrowers a fee of 0.5% of their loan amount and lenders a 0.5% annual service fee. Lenders pay an annual 0.5% fee on the amount they lend to borrowers. A credit score of 640 is required to borrow through Zopa. Currently, the borrowing rates currently range from 8.75% to 16.99%.
At The Lending Club borrowers complete a loan request and instantly view the interest rate at which they pre-qualify. A minimum credit score of 640 is required. Borrower processing fees range from 0.75% (A) to 2.00% (G). Lenders pick a suitable portfolio of loans to fund. The average portfolio performance according to the Lending Club site is 12.25% and the average borrowing rates range from 7.37% (A1 credit score) to 18.61% (G5 credit score). Lending Club is not accepting new lender applications at this time.
GlobeFunder is a secure, online lending marketplace where Borrowers are in control. By eliminating the traditional middleman, this unique lending platform offers lower costs to Borrowers for fast, efficient loans. Borrowers are able to post a loan request on the GlobeFunder marketplace for the amount you need, at an interest rate and repayment schedule right for you. Lenders must apply with GlobeFunder Ventures to become approved to fund loans on Globefunder. Fees are charged on loans set-up with ACH payment at 1.75%. Globefunder expects to service borrowers in all 50 states by the end of 2008, but are currently only licensed in the states of Alabama, Connecticut, Florida, Georgia, Hawaii, Indiana, Louisiana, Michigan, Missouri, Nebraska, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, and Wyoming.
LoanBack creates a customized promissory note and payment schedule for loans arranged privately. Legally binding in all 50 states. Fees for loan forms range from $9.95 to $14.95.
Fynanz is a social lending site designed specifically for college students. Students in need of education financing creates a loan request on the Fynanz website for their loan. After the request is approved by Fynanz, the listing is posted on an online auction on the Fynanz site. Individual lenders who are also members of the Fynanz community, such as family, friends, alumni and others, can the bid to lower the financing costs for the students. The financing rate is set by a Base Rate based on the 1-month LIBOR (currently 3.62%) and a margin rate set by the online auction (ranges from 2.50% to 7.50%). Fynanz charges a 1% annual servicing fee for current loans.
Social Lending Sites Coming Soon
Loanio.com is due to launch in 2008
* The accuracy of the Information above is not guaranteed and should not be construed as investment advice.
Money-rates.com will be trackng the portfolio performance of microfinance and social lending sites in 2008 through company-released statistics and first-person lending experiences. View portfolio performance data here
Posted 7/17/08
