The credit crunch has had many effects on the state of the American economy: bankruptcy filings are on the rise, foreclosure rates are skyrocketing and loans are becoming more and more difficult to secure. But, being Americans, we as a nation are finding ways to cope with - and even benefit from - tighter consumer credit.
According to BusinessWeek and USA Today, the latest trend among Americans in need of loans is what's known as peer-to-peer lending, or person-to-person lending. Read on for some background on peer lending and how you can get involved.
Peer loans are exactly what they sound like: one person lends money to another. Basically, it's just like any other loan, but the formal banking institution has been taking out of the mix. Because of the Internet's ability to connect people and serve as a transactional tool, peer lending has come into its own online. Here are the two basic types:
With consumer credit hard to come by these days, peer lending provides borrowers with much-needed access to loans. Plus, their format provides a few benefits that traditional loans don't offer.
Like anything else, peer lending is ultimately a mixed bag. The small-scale setup that forms much of the appeal of peer loans can also prove unsavory when borrowers default.
But lenders and borrowers can work around these potential pitfalls. Some lenders reportedly spread out their capital, lending small amounts to various borrowers, so they're only minimally hurt by any individual's default. And borrowers, as always, can shop around to find the best rates available.