Mistrust In Banks Will Lead To People Borrowing From… Each Other
P2P Lending, otherwise known as person-to-person lending, people-to-people lending, peer-to-peer lending and social lending, is not a new idea; it’s how lending started in the first place. P2P lending is, simply put, a loan between two (or more) people without the participation of a financial institution. Though commerical lending has been the norm for decades upon decades, P2P lending has not completely died off.
P2P lending has been seen mostly between family and friends; a father loaning his son $10k, or someone loaning their best friend $5k, for example. However, a fresher variation is becoming popular and could affect you as a domainer in many ways.
The internet has made it easier for strangers to engage in P2P lending. And the tough economic times on top of bank mistrust and a credit crunch has driven people to seek such financial help.
Now, don’t view this as a simple handing over of cash and trusting the borrower will eventually pay. There are contracts. Sites that help facilitate such loans do credit checks on borrowers for the lenders. This is serious business.
I know what you are thinking: without the threat of a giant banking being able to destroy you, people will abuse the loan: miss payments or stop paying all together. Wrong. Because other PEOPLE are involved, and not a faceless bank, people tend to be more willing to pay and do so on time, according to this Time article. They say that Lending Club, one of the largest facilitator of P2P loans, has a default rate of less than .5%. To give you some numbers to compare that to, here are some specific loans and their most recent default rates (that i could find):
Either it’s too early, I’ve lost my Google mojo, or there is a conspiracy… but I can not find what the latest subprime default rate is (from a legit source). Can you believe that? Seriously, search for yourself.
Anyways, I feel my point has been made. These appear to be a safe bet. People seem to be more willing to pay off other people than they do a bank. I’m sure that’s not the entire reason, but a good chunk of it.
This trend has been growing the past year or two, but I think we’re seeing the surface. I think this has potential to get real big. People will prefer to get their money from a person(s) at 5% lower than what a bank would give them. The banks, wanting to cash in on the trend, will likely even offer their own P2P lending networks. They’ll just offer the forum, credit checks and forms.
Mark my words!
As a domainer, arm yourself with this knowledge! This can grow into P2P lending for specific niches; people may want to loan money out to others in fields the know, understand and trust. DomainLending.com, SolarLending.com, RestaurantLending.com, etc. Even though domainers are a resourceful and motivated lot, I don’t see any of them building actual social networks that facilitate loans, but you never know. I’m more willing to bet on directories that show people where they can get loans, and information sites that educate people on P2P lending.
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One Response to “Mistrust In Banks Will Lead To People Borrowing From… Each Other”
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Yes, social lending is an interesting concept when looked at the surface. Once you take a little deeper look you will find that these sites are nothing more, or will become noting more than advertising billboards for financial services companies and the banks, and not a place were you can get a loan at a lower rate because.
Here are some key points
1. Lending is a regulated business, meaning all money will always flow through the banks so banks don’t really loose business, social lending just transfers the risk borrowing from banks to the people.
2. You can’t get a lower rate than from banks.
3. This is a good deal for the banks because the risk of borrowing gets transferred and absorbed to people so they can borrow to each other.
4. Friends Lend to Friends at 0% interest, if your friends charge you a %, then they are not your friend.