OPTIMIZED SYSTEMS

Peer-to-Peer Loans Get Personal

Rebecca Kutzer-Rice | Date: 06-15-11 | Comments

Peer-to-peer lending sites have been around for the past few years, but now some sites are combining social media aspects that make loaning more personal than ever.

Recently, we wrote about how Google Wallet could change the basic ways you carry and spend money. Now peer-to-peer loan sites and social media sites are changing how people borrow and invest their money.

Zopa, which launched in 2005 in England and Italy, was one of the first peer-to-peer loan Websites. Using the site, people with decent credit scores can borrow money from interested lenders. Much of the borrowing works just like a normal bank: users sign legally binding contracts and debt collectors are contacted if loans are not repaid.

But, according to Zopa, the peer-to-peer format offers several advantages over banks. Borrowers receive better interest rates, and lenders get better returns than traditional savings accounts.

Risks are further reduced by spreading loans out among many different borrowers. For example, someone lending �500 has their money spread across at least 50 borrowers.

Several similar companies have been popping up across the world, including Smava in Germany and Communitae in Spain. In the United States, Prosper manages peer-to-peer loans for over a million members. Since its launch in 2006, Prosper has overseen over $237,000,000 in personal loans, making it the largest site of its kind.

Social media is also playing a role in peer-to-peer (P2P) lending. Last year, the UK-based site Yes-Secure was launched. Like other P2P lending sites, Yes-Secure ensures safe lending by placing limits on funds. But lenders can provide more money if they share a social connection with their borrower.

A similar site is Funding Circle, which combines P2P and social lending for businesses with its circles of common interests.

A recent article on New Scientist notes that while the major social media site Facebook does not yet have a P2P lending system, it does already have its own virtual economy that includes currency, Facebook Credits, to purchase both virtual and real goods.

In the article, Dave Birch, director of Consult Hyperion in Guildford, UK, posits that new methods of tracking virtual currency, such as Google Wallet, will soon become necessary.

"It sounds a bit crazy that people would use these odd currencies, but I don't think it is," he tells New Scientist. "I'm not sure you will bother thinking about individual currencies. Just let the phone sort it out.�

Have you or your business used a peer-to-peer or social lending site? Sound off in the comments section below!