Most people given the chance like to help someone else, which is the whole idea behind people-to-people lending. People-to-People lending isn’t anything particularly new; in many respects the credit unions of the past worked on at least a similar principle and one way or another people have been lending money to each ever since we stopped bartering for things. The significant point about people-to-people lending is that it doesn’t involve a bank. When a bank lends someone some money it’s a fairly impersonal transaction. The money doesn’t actually belong to the bank and all the bank is concerned about is making a profit on its loan. Whereas, in a person-to-person loan; there is, quite literally, a personal connection between the lender and the borrower. You may well ask if there are any risks in people-to-people lending; and of course there are - which is why you’re advised to participate in people-to-people lending through an established and reputable organization.
In the past the most common examples of people-to-people lending would be one person lending money to a friend or family member. That would quite often mean lending cash, but could also have involved transferring money to and from bank accounts. These people-to-people lending arrangements would rarely involve any degree of interest being paid on the amount loaned and may well have had a generous, if not an unlimited, period in which the money could be paid back. For larger amounts of money, dependant on how rich your friends and family might have been, if you didn’t want to go to a bank for a loan; credit unions could often help out.
Today, Web 2.0 technology using social websites means that anyone - anywhere in the world; can become a person-to-person lender of money. All you need to do is find one of the websites specializing in people-to-people lending, register with them and then look for projects and causes that you’d like to lend money to - or borrow money from.
Lot’s of people thinking about becoming involved in people-to-people lending will want to know how it works first. Let’s take a simple example. Imagine I’m a student at California State University Northridge; and I want to set up a support service for students coming to CSUN with sight difficulties. I’ve got a business model and pledges of support from CSUN, but need some funding to kick-start it. Going to a bank or a finance company would cost too much in interest repayments, so I’m looking for a loan at a low rate of interest for my socially valid project. Ideally, what I’m really looking for here is someone willing to lend me money for altruistic purposes, as much as wanting to make a profit for themselves. A Web 2.0 social lending club is just the thing I want for this. I can look through all the people in the social lending club willing to lend money to socially worthwhile projects such as mine. They might be in California - they could be anywhere in the world, it doesn’t matter.
Having identified someone that I think will be interested in joining me in a people-to-people lending arrangement; all I have to do is contact them through the social lending club on the internet and arrange to borrow the money and fix the repayment terms.
There will undoubtedly be some unscrupulous folks out there that will think people-to-people lending is an easy way to get some money and not have to repay it. First of all, even as a borrower, your credit history will be checked by the social lending clubs you register with. Secondly, the whole premise of person-to-person lending works to a large degree on one of trust. You must see any loan made to you by a social lender almost as if it came from a friend or relation. Who, hopefully, you wouldn’t want to cheat!