For years, credit card issuers have aggressively sought out new borrowers and urged former borrowers to charge more. Mailboxes across the country were filled with new offers, introductory rates and rewards for removing these cards from their wallets and using them.
Each issuer has tried to outperform its competitors by promising low rates for balance transfers and ever-increasing credit limits. Then, the financial crisis appeared and card issuers began to face greater losses.
In recent months, major credit card issuers have withdrawn new credit cards, lowered credit limits, raised interest rates and closed accounts even for their most creditworthy borrowers.
Now, a new generation of lenders is proposing to intervene where credit card companies are afraid to walk. This new breed is called the social lender. These are loans between individuals, where the lender often has the choice of the user who will use his money.
Lenders using Kiva.org, for example, might choose to lend $ 500 to a start-up contractor to purchase equipment. Since 2005, Kiva members have loaned more than $ 58 million to more than 83,000 entrepreneurs. In the past years, most were in developing countries, but now, Kiva is also lending to the United States.
Pertuity Direct is the latest addition to social lending. Investors invest their funds in a mutual fund operated by National Retail Bank. Borrowers who wish to use these funds apply through the website for a fixed-rate, fixed-payment loan, generally payable between one and three years. The minimum credit rating required is 660 and interest rates are 9.6%. The approval is almost instant and the money can be in the borrowers. hands in 1 or 2 days.
Some social loan sites will accept lenders who wish to invest only $ 20 – giving almost everyone the opportunity to invest.
Some social loans are directly inspired by sites such as Facebook and eBay. Prosper, for example, lists loan applications ranging from debt consolidation to moving expenses. Lenders can then choose the loans they wish to finance and bid on these loans at the interest rates and terms they are willing to accept.
The Lending Club gets even closer to the social networking model – allowing its borrowers to find potential lenders based on their location, their "network" or their "friend" status.
Social loans now also apply to student loans, which were initially excluded because of the short repayment period. Lenders recommend that students first apply for federal loans and use private lenders as an alternative.
Several companies are involved, but GreenNote, Zopa and Fynanz are the main candidates.
GreenNote relies on the same type of social network as Facebook – and the loans are negotiated between "friends".
Zopa follows a CD model and relies heavily on partnerships with credit unions.
While Fynaz sets a minimum FICO score for borrowers, it relies more on the Fynanz Academic Credit Score, which assigns a student's GPA score, curriculum and institution profile. teaching. .
Online Banking Report predicts that social loans will reach about $ 130 million this year.