Who needs banks when you've got Facebook? Peer-to-peer lending sites are drawing more borrowers and lenders who prefer to make their deals directly with each other. Sites like prosper.com and circlelending.com have done $85.5 million and $200 million in loans, respectively. Lendingclub.com integrated with social-networking site facebook.com early in the summer and says it arranged $500,000 in loans in its first seven weeks.
But are these sensible places to borrow or lend money? The interest rates on these unsecured loans tend to be high, so borrowers with good credit scores could get better rates on most mainstream credit cards. Lenders—anyone willing to put up money in the hopes of earning better rates than they would at a bank—might find more to like. Prosper and Lending Club both check borrowers' credit records and are aggressive about collecting on payments, and lenders can make up to 13 percent on their loans.
Would-be borrowers and lenders should check out prosperlenders.com for a list of independent sites that help set rates and evaluate financial partners. Lenders should also factor in the fees they'll be paying to support the peer-to-peer site. Most make at least 2 percent on each loan they complete.