Wednesday, February 25, 2009

Can Peer to Peer Lending End the Credit Crunch?

Crossposted from, where I've been blogging like crazy this past week and have been too busy to post over here. I'll get back to it momentarily.


Credit card companies are canceling your account . Student loans, home mortgages, and auto loans are all getting harder to obtain, and the big bank where I have an account is insolvent; how about yours?

Starting today, a range of next-generation financial services companies, all of whom employ technology in innovative ways, have teamed up to market some much-needed help to consumers with the Uncrunch America campaign. Like a team of of financial Superfriends, Lending Club offers personal loans through a peer-to-peer model, Virgin Money (yes, a pro-social for-profit offshoot of the Branson empire) has peer-to-peer mortgage financing, OnDeck Capital offers small business loans with a proprietary holistic scoring model, CreditKarma has credit score tools, and Geezeo offers personal finance and budgeting tools.Since the beginning of the year, UnCrunch members have lent almost $75 million to each other.

The site has an overwhelmingly grassroots, patriotic feeling and look, as though it were a stray page from or "The American people will solve the credit crisis by helping each other," it proclaims.

Does this fine-sounding premise hold up? Peer-to-peer lending is one of the oldest ideas in finance. In its online incarnation, it doesn't have anything like the volume yet to fill the trillion-dollar gap in the consumer credit market. But it does offer an intriguing alternative to the standard profit-happy credit model, and it's been spreading as a close cousin of the microfinance or social lending movement. As a niche both for borrowers shut out of the credit market and for investors looking for a better return than the stock market can offer, it's likely to grow.

via Uncrunch America


Jim said...

Credit crunch is a time when every lender try to stay away from the borrower as they don't afford to give more loans. In case of students it becomes more difficult because the lender will never let them borrow as students are not at all a secure customer. In this situation they have only one place left where they can find money and sometimes with 0 interest rate. They go for lending from the peers. This way only they can save from credit crunch and high interest rates.

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