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RENEE MONTAGNE, host:

This is Morning Edition from NPR News. Good morning, I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. If you need money and can't get a bank loan, you may want to consider a growing trend known as peer-to-peer lending. You know how this works. Renee is sitting right here. Renee, you got 20 bucks?

MONTAGNE: Yeah, I got my hand out here.

INSKEEP: OK. Thank you very much. Appreciate it. Well, actually, it's a little more complicated than that, a little bit. Companies such as Lending Club and Prosper match individuals who want to borrow money with those who have money to lend, and it's all done online without going through a traditional bank. We have more from NPR's Wendy Kaufman.

WENDY KAUFMAN: When social worker Jennifer Mamary needed a car for a new job, she bypassed the banks and turned to Lending Club's Web site to find people who would lend her money.

Ms. JENNIFER MAMARY (Social Worker): In order to get the loan, you have to put together a profile and talk about both your financial history as well as where you currently are financially, and then talk a little bit about why you want the loan. It was a really easy process. In terms of quickness, I think it came through within two weeks.

KAUFMAN: She used the $5,500 loan to buy a used car. The interest rate on the three-year loan was competitive, or perhaps even better than she would have received at a traditional bank. Mamary's approach to getting a loan may soon become more popular. Money and credit are tight right now, and many conventional lenders are exercising extreme caution. At the same time, some investors who are looking for a place to put their money outside of the stock market or low-interest Treasury bills are showing more interest in peer-to-peer lending.

Mr. RENAUD LAPLANCHE (Founder and CEO, Lending Club): The combination of those two factors makes it the perfect time for social lending.

KAUFMAN: That's the founder and CEO of Lending Club, Renaud Laplanche. He points to numbers to support his claim. Over a 10-day period in October, 1,200 new investors signed up to lend money.

Mr. LAPLANCHE: That's about three times the rate we were experiencing back in April.

KAUFMAN: Since 2006, about $200 million has been lent through peer-to-peer lending. That, of course, is just a tiny drop in the overall lending bucket. Thus far, most of the peer lending has been facilitated by an online company called Prosper. Lending Club is much smaller, but CEO Laplanche says it's poised for growth. It just received SEC approval to issue notes for $600 million in loans. Prosper and Lending Club make their money through origination and service fees. The idea of individuals lending to each other is, of course, very old. But over time, lending has changed. David Schehr of Gartner Research suggests that modern institutional lending began with the community oriented savings and loans.

Mr. DAVID SCHEHR (Research Director, Gartner Research): Then you went through the kind of commercialization, demutualization, and then you had small local banks that were owned by private individuals. And now you have much larger banks owned by corporate entities or by transnational entities. And now we kind of come full circle around to the other side.

Mr. JIM BRUENE (Founder and Editor, Online Banking Report): I think it's a good niche that will stay, and I think it'll grow.

KAUFMAN: Jim Bruene is the founder and editor of the Online Banking Report. He says people with stable, well-paying jobs and stellar credit histories probably won't need peer-to-peer loans. But there are lots of people who fall through the credit approval cracks.

Mr. BRUENE: It's people that have changed jobs, or they just got a graduate degree, or they just made some big changes and they're starting something new. This alternative gives them a chance to go in and tell their story, explain their budgets, and perhaps come out with a really well-priced loan that can help them get started with something.

KAUFMAN: Those who lend their money can earn returns of about seven to 12 percent or more. They can pick and choose which individuals they want to lend to. Oftentimes, they lend a small amount to lots of different borrowers, thus minimizing the risk of nonpayment by a single one. Right now, the typical peer-to-peer loan is less than $10,000, and it's unsecured. But that could change as those lenders consider expanding their offerings to include things such as home mortgages. Wendy Kaufman, NPR News.

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