Alternative lending sites often have good deals
— -- You list and bid for shoes, concert tickets and even cars online. Why not loans, too?
That's the thought that came to René Clayton last year when she heard about a website that connected consumers who wanted to borrow money with those willing to lend it. She was short on cash and wanted to buy a fence for her yard. But she didn't think she'd be able to take out a bank loan because of her already high debt.
Clayton, of Odessa, Fla., searched online for alternative lenders and found Prosper.com, which facilitates loans among individuals.
"I think it's a really good concept," says Clayton, 40. "People understand this because they're used to eBay and PayPal."
At a time when social-networking sites have taken off and trading on eBay has become a national pastime, the idea of borrowing from peers — rather than from banks or credit card companies — is gaining appeal. A handful of companies provide peer-to-peer lending, with each offering its own twist.
Several advantages
Borrowing money from your peers has its perks. You might be able to secure lower rates than what financial institutions charge for unsecured loans. (That said, if you owned a home and could get a home-equity loan, you'd probably get a lower rate than you could get borrowing on peer-to-peer sites.)
This type of lending isn't for everyone in need of unsecured cash. Most peer-to-peer sites limit the amount you can borrow. And there are generally more borrowers than lenders online, so not every loan will be funded. In addition, those who are more comfortable tapping the generosity of family and friends have little need to seek out these sites.
"There's only so much capital out there," says Jean Garascia, an analyst at Javelin Strategy & Research. "The (online) community is basically calling the shots and figuring out who's going to get loans."
The main reasons why borrowers turn to peer-to-peer lenders? They want to find low interest rates and to avoid piling up credit card debt, according to a November survey conducted by Javelin.
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