“Never lend money to friends or family,” the saying goes. But how about complete strangers? Websites that match up borrowers and lenders are enjoying a new wave of interest after a series of high-profile endorsements.
First came Andy Haldane, executive director for financial stability at the Bank of England, who said peer-to-peer lenders could eventually replace high street banks. “At present, these companies are tiny,” he said. “But so, a decade and a half ago, was Google. If eBay can solve the ‘lemons problem’ [substandard products] in the secondhand sales market, it can be done in the market for loans.”
Then the government said it would channel £100m to small businesses through alternative lending channels, including peer-to-peer lenders, hoping to bypass the mainstream banks, which are reluctant to lend. The news caused a flurry of excitement among the few established players in the field, including Zopa, for personal loans, and Funding Circle, for small businesses.
These websites act as a kind of broker between lenders and borrowers. The idea is that without expensive branches and the weight of regulation, they can offer better rates to both sides. For a loan of £5,000 over three years, Zopa certainly comes out cheapest on moneysupermarket.com, offering 7.3%. And it says lenders on the site can expect returns of 5%-5.5% after fees and bad debts, which beats most easy-access savings products out there. The model is, however, not without risks
full article at source: http://stateofglobe.com/2012/06/10/are-peer-to-peer-lenders-the-future-of-banking/#more-3759