Social lending using the Internet is a relatively new phenomena that may save you a lot of money. But, like any lending, there are pros and cons. What is social lending all about, and is it really frugal?
Basically, social lending consists of networks, some small, others a bit larger, that facilitate small loans, usually lent by private individuals. The interest rates on these social loans is usually much lower than what is offered by a bank. Plus, there are usually no restrictions on the minimum you can borrow. So, for example, if you needed to borrow $200 for a car repair, there may be someone ready to lend it to you.
Another benefit of social lending is that the amount of time that you get to pay back the loan can be quite generous. For investors, lending money is a way to earn some interest, but of course, there is always a risk that the borrower will default on the loan and not pay up.
Still, standards need to be met by anyone who wants a loan. These standards will vary by network. If your credit is bad, don’t get your hopes up too high about getting a loan. If you have already been turned down by a bank, it is unlikely that you will be able to get a loan through a social lending website.
There are several social lending websites out there to choose from. As always, if you are interested in trying them out, please make sure that the site you choose is legitimate.
Some reputable social lending sites include GreenNote (which also helps with charitable donations for college students), Prosper.com, and The Lending Club.
So is social lending frugal? It can be if you really need the small loan and don’t want to pay for higher interest rates. Funding a college education or job growth opportunity can be an investment. Taking out a loan to buy more stuff that you can live without can be disaster, no matter how low the interest rate.