There’s a good amount of talk on this blog about how difficult it is for the run-of-the-mill business to apply for and actually receive a small business loan from a corporate bank – yes this still goes on today. Though some finance and banking experts talk about how banks are loosening up on loans, it remains to be seen if that is actually happening or not. For personal lending, the debate is pretty much the same: banks showing considerable reluctance or increased interest rates when lending to private individuals.
Peer to Peer Lending Appears to Benefit Both Borrowers, Lenders
As a result of this slow, tepid pace of personal lending, peer to peer lending came about and has been experiencing tremendous growth over the past few years. Peer to peer lending sites offer everyday people the option to both apply for loans and to serve as the lender getting relatively high (6 to 9 percent) interest rates in return. Those who borrow tend to receive a lower interest rate than they would from a bank; many even use the loan to payoff credit card debt. The sites have a simple application and vetting process, and lenders find a high rate of loan payback. Thus far, the arena has proven a boon to consumers on both sides of the lender-borrower spectrum.
Is Peer to Peer Lending Going to the Banks?
With huge growth in this sector, the big corporate banks have started to take notice. Though it was their long application processes, bureaucracy and reluctance to lend that in many ways gave birth to the peer to peer lending companies, these banks are now seeing the money to be made and are wanting in. In an ironic twist, it appears these same financial institutions that said no to consumer lending are becoming the peer to peer lending companies’ biggest lenders – according to NYTimes.com. At one major company, “institutional lenders” aka banks comprise about 80 percent of the investors. Those close to the industry believe we are witnesses a dramatic shift in the nascent peer to peer lending arena, what one expert states “won’t be P2P for long.”
So consumers who thought they’d avoid the hassle and inconvenience of borrowing money from a bank by going to those sites may actually be getting a loan from a bank of another name. It remains to be seen how this situation will unfold, who will benefit, who will detriment, and whether peer to peer lending will be able to stay true to its “peer” roots.