Hey Skint pals,
Remember back when the banks reigned supreme? When a job in a bank was a byword for trustworthiness and good character? How, when the creators of Mary Poppins were looking for a reliable, even downright dull occupation for the children’s father they called him Mr Banks and set him to work in one to show just how solid he was?
Hmm, now fast forward a few years. To economic slump time, when banks are brought to task for lending decisions which are far from solid, far from responsible and far from dull. In an effort to reign things back, they panic. They stop lending, even to safe bets. The numbers of loans they give are slashed. Who fills the gap?
Meet the Money Cupids!
As you know, us Skint folks are always interested in what’s new in the money world – especially if it involves the chance to make or save some money. Step forward a new form of lending which I’ve been reading lots about lately . . . peer-to-peer lending, (*peer-to-peer lending takes a bow*). It’s the new kid on the money block, promising low-cost loans on a different, more collegiate model than the one used by banks, and returns for lenders (savers), which reportedly exceed any ISA or savings rates offered by the banks. Peer to peer lending platforms basically operate like a matchmaker, fixing up individuals or firms who need capital with lenders who are happy to tie their money away for a while in the hope of getting good returns.
And of course, like any good matchmaker, the best peer-to-peer platforms should do plenty of vetting and checking before fixing you up on a date, just to ensure there are no nasty skeletons.
So far, peer-to-peer lending platforms, such as one of the best-known, Lending Works, report impressive returns for lenders, suggesting that it might be a good alternative method of boosting savings in the se times of low interest rates. And I can see that such platforms, which don’t have the costs of big bonuses or big buildings to shell out on, might be able to offer better rates for both lenders and borrowers because they’re more nimble. peer-to-peer platforms directly connect lenders and borrowers, cutting out the financial institution in the middle. I like the spirit behind the whole thing - it sounds cheerful and collegiate, but how safe is it? Would you put your money into it?
If you are thinking about lending via a peer-to-peer platform, one of your main concerns will be whether the money you lend is safe. What happens if a borrower defaults on payments? If you’re worried about being left of out of pocket, it makes sense to look for a peer-to-peer platform which has strong levels of lender protection money to cover nasties like borrower defaults, fraud and cyber crime, maybe through a guarantee scheme. And of course you want to be sure you choose a platform which carefully checks and vets all of its applicants.
I haven’t dipped my toe in the water yet, but I’m reading all I can find about this new way of borrowing and lending money and would love to hear from those who have taken the plunge. Would you do it, Skint pals? Would you join the peer-to-peer brigade, borrowing and lending money in an entirely new way? Or do you still feel safest with the banks?