This month's article is on peer-to-peer lending. I've mentioned it before, but wanted to revisit the subject because everyone in the group may not know about it. We have some announcements (CONGRATS Alex!) and the usual goodies and tidbits as well. Also, as you may or may not already know I will be moving this summer and want to tell you all about that...here we go!

See you on the fast track,
Tina

Peer-to-peer lending hits its stride
By Kathy Chu, USA TODAY

As the global credit squeeze leads banks to tighten their lending, a niche industry is emerging as the eBay of consumer loans: peer-to-peer lenders.

With peer-to-peer lending, individuals, some of them with little or no collateral, seek loans from ordinary people looking to lend. Lenders compete with each other to make loans, often resulting in lower rates for borrowers - averaging 10% to 16% - than are available on unsecured bank loans.

Typical loan amounts range from $8,000 to $20,000; on some sites, multiple lenders may fund a loan, each offering to lend $25 to $200 to a borrower.

The market for the loans is still relatively small but growing fast, according to Celent, a research firm. Celent projects that $5.8 billion in peer-to-peer loans will be made in the USA by 2010, an 800% leap from the amount this year.

Lenders on the sites usually decide whether to lend money to a particular borrower - and at what rate - based on the borrower's credit score and existing debt. Yet unlike with a bank or credit card loan, the decision is sometimes based on social factors, too: how compelling the borrower's reason is for a loan or whether he or she shares hobbies with the lender, says Christine Barry of Aite Group, a consulting firm.

"When you're dealing with a large financial institution, it may be difficult to tell your story and get people to understand," says Douglas Dolton, CEO of Zopa, one of the peer-to-peer lenders.
The more established players - such as Prosper and CircleLending, which sold a majority stake in the company and rebranded itself Virgin Money US this year - dominate the business. But more rivals are entering the industry at a time when even people with good credit are finding it harder and costlier to borrow from traditional sources.

In December, Zopa opened up shop in the USA. Also this month, Lending Club, which began as a service for Facebook members, expanded nationwide.

"It seems that the credit crunch is accelerating our growth," says Renaud Laplanche, CEO of Lending Club.

Peer-to-peer sites profit not from a loan's interest rate but from fees they charge borrowers and lenders to make and service the loan. They also check borrowers' credit, and contract with third parties to collect on bad loans.

Default rates are lower for peer-to-peer loans than for other consumer loans. Cory Moore became a lender on Prosper.com this year. To hedge against defaults, he spreads his risk by lending small sums to different borrowers. So far, he's made 170 loans, for $50 apiece.
"If one defaults, I've lost (money for) a dinner for two," says Moore, who says he's collected about $4,000 in interest from the loans. "Each loan is only $50, so I'm not worried."

Alex Nominated!

Hi everyone, Chris here. Many of you know my daughter Alex, she often plays Cashflow with us at the Saturday games. She has recently been nominated to attend the National Young Scholars Program (NYSP). The NYSP was created to identify young students with a history of academic achievement and exceptional leadership potential. The program will recognize and honor the most mature and independent individual possible within the 4th and 5th grades and nominations are extended to high-achieving scholars only. We are very honored that Alex was nominated for this program and are attempting to raise the necessary funds in order to send her to this program this summer. In order to do this we must raise $2000, by April 1st, 2008. I know this seems like short notice, but I know that with your support and our other fund raising activities we will be able to make this goal. Thank you in advance for your support.

Note from Tina: I didn't want to put Chris's contact info on the blog, so if you have any questions or suggestions email phoenixhoward(at)gmail.com