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

When Prosper first launched [3], 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 [4], 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 [5]).

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 [6]. Peer to peer lending is cheaper and faster than consumer credit. “Lending Club’s [7] 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!