Where to go for a loan?
LONDON, England — With banks failing across the world, where do you go for a loan? If you’re lucky enough to have money, where do you park your hard earned cash? A bank? Maybe. But there are alternatives online.
Internet sites like Zopa.com in the UK skip the bank entirely and put lenders directly in touch with borrowers.
Here’s how it works: Lenders decide how much they want to put in and at what rate. The web company then screens potential borrowers to make sure they have good credit and are not asking for more then they can afford. Once approved, borrowers are matched to lenders. It’s up to them to strike a deal. The website makes money by charging a fee to both.
“It’s simple and transparent,” says Giles Andrews, Managing Director of Zopa.com. “People see where there money is. That will show there is more security that goes beyond the 4 brick walls of a bank.”
Zopa isn’t the world’s only peer-to-peer lender. Other sites like LendingClub.com, Prosper.com, and, RaiseCapital.com offer similar services gaining in popularity.
Part of the appeal is the personal connection. You get to know who is borrowing your money and why.
On Zopa.com, for example, borrowers write up a personal profile explaining why they need the loan and how they will pay it back. Lenders can also log in online and ask the borrower more questions before offering them a loan.
Zopa says its lenders get a 10 percent return on average. The default rate: less than .05 percent. The company says stringent credit checks are the key to its success.
It also tries to minimize risk by distributing loans into small chunks and spreading your money across a variety of borrowers.
If a borrow defaults, then Zopa steps in to take control with a collections agency, much in the same way a Bank operates.
“They enjoy the personal contact. People say I’d rather get interest and invest in a real person than a bank,” says Andrews. “But while Zopa is a friendly alternative to banks. It’s not a soft-touch to people that default.”
Analysts say this kind of lending is a viable alternative to banks - but don’t expect any great deals.
“The best rates will only be available to people with incredibly good credit ratings,” says David Black, Principal Consultant at Defaqto Financial Research. “It’s all done over the internet. So, you don’t have to suffer the ignominy of being told no face to face. Which you might do if you went into a bank.”
Zopa.com says the company has facilitated loans of more than 45 million dollars since 2005. Registration for the service jumped 40 percent this year and it has sites in the UK, US, Italy and soon Japan.
What do you think of new Internet sites like Zopa? Would you consider approaching them for a loan? Do you think they can provide a viable alternative to traditional banks?
