Peer to Peer Lending: Harvard Business Review Breakout Ideas of 2009

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Harvard Business ReviewWhen Prosper first launched, I thought it was a cute idea that had some potential but likely wouldn’t earn my trust. Since then, other companies like LendingClub have launched and the whole peer to peer lending phenomenon has exploded in the news.

When you think about it, peer to peer lending has been around for ages, businesses just hadn’t figured out a way to tap into it. On a small scale, I lend people money all the time. $5 for lunch, $10 for a movie ticket, etc. (though I’ve never charged interest) On a grander scale, parents lend their kids money to buy a car or their new home. To ensure they don’t run afoul of the $13,000 gift tax, you might structure it as a loan (though most do it incorrectly, here’s how you can legally structure a loan to family and friends).

Well, the media buzz has become a roar because Harvard Business Review recently named peer to peer lending as one of the breakout ideas of 2009. Peer to peer lending is cheaper and faster than consumer credit. “Lending Club’s rate for the best credit risks is 7.88%, whereas the bank rate for personal loans, on average, is over 13%. A credit-worthy borrower gets the money faster and for 5% less.”

Looks like peer to peer lending is here to stay!

{ 9 comments, please add your thoughts now! }

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9 Responses to “Peer to Peer Lending: Harvard Business Review Breakout Ideas of 2009”

  1. Chuck says:

    This is hilarious. It’s not a breakout idea. Peer to peer lending is the original point of banks! Remember George Bailey’s Savings and Loan? But banks are out of hand, and have investment divisions, brokerages, hedge funds, and other nonsenses that have nothing to do with depositing or lending. Credit unions are a little better in that regard. But right now, Lending Club is the cheapest middle-man to consumer lending and borrowing, so they’ve got my business.

    I’m testing it out with $1000, but if it shows signs of continuing success, I will probably send over much of my intermediate-term (3 year) deposits, because bank savings is a lost cause.

  2. If I get to a point where my Emergency Fund is comfortably large enough I will probably try my hand at P2P lending, but without a lot of “expendable” cash I don’t know that I am willing to assume the risk of lending to people without any real collateral, and I definitely think it would really be something I would pursue after I start a LLC or other official business.

  3. My Journey says:

    I hate to be “that guy” but the gift exemption amount this year has been increased to $13K/yr/recepient.

    I just an input on the family loan situation – the AFR (Applicable Federal Rate) is at all time lows, why set up a 7 or 8% loan when you can do 1.98% interest only?

    • Jim says:

      Thank you for correcting me, you’re not “that guy,” I am thankful there are readers like yourself who can correct me when I’m wrong because I’d rather be correct than to continue with incorrect information.

  4. thomas says:

    Haven’t dipped my toes into P2P lending. I just don’t feel comfortable lending my money out this way.

  5. James says:

    Sounds like a Credit Union, my CU keeps reminding me that I’m an owner/member… Just a first impression.

  6. Robin says:

    Last year (2008) I wanted to put some money in a savings and watch it grow. I wasn’t thrilled with the 1.5, 2 or 3 percent that CD’s offer so I stumbled upon Little by little I invested and quickly learned my way around. I absolutely loved it. Then they shut down and I have been waiting for them to start up again. In the mean time I have looked for another P2P lending club…to no avail.

    Does anyone know of any that are up and running with a similar platform of Prosper?

  7. ebekele says:

    Great info! I have nothing but good things to say about The rates are competitive & fast turnaround (time = money). I know firsthand, it has helped many people when commercial banks & cu’s turned their back; especially in ’07, ’08 & ‘09. When people are in need of quick cash that’s where I send them.

    —“What’s the one thing you did this morning to brighten someone’s day?”

  8. Brian says:

    I opened a Prosper account in 2007, so I’m not really sure how this is a 2009 breakout idea. Way to be on top of a trend Harvard Business Review!

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