Revisiting Loans from Friends or Relatives with Peer-to-Peer Lending

May 19th, 2009 • Related • Filed Under • by Debbie Dragon

You know the conventional wisdom about borrowing money from family members or friends? Never, ever get involved on either side. Even if you pay off the loan and everything is “ok” between you, there is still a possibility that things could go wrong. Then, you would be in a difficult position with this person and you might even damage the relationship beyond repair.

Relationships are the funniest things in the world. One minute everything is ok and the next there is a major problem; mainly because people refuse to handle things in a non-emotional way. Often, what should be a small matter gets blown out of proportion.

Now, add in finances into that kind of environment and you see why the fireworks start so quickly and explode into major, relationship-crashing events.

What are the consequences? The consequences are broken friendships or family relationships in which people who were once close, refuse to speak with one another ever again. You have to answer the question “is it worth it?”

But now there might be a different way to make this work.

What has changed? Enter the world of peer-to-peer lending, with a twist: an organization through which the loan is set up and administered. A company that specializes in this type of activity helps set everything up between the two parties, and the arrangements can be made and handled even though you might live miles apart.

Look into www.prosper.com or www.virginmoneyus.com. These two businesses offer to manage loan arrangements between family members and friends. They also offer traditional lending as well.

Known as “social lending,” you will find these services offered: loan documents, electronic funds transfer, email statements, credit reporting, year-end reporting, changes and re-structuring if needed, hand-holding and tough love.

Can this work for you? You might still be skeptical, and you have every right, but there is credibility to this business model and it is working for many people.

The steps to making this happen include: creating a loan proposal and finding someone to lend you the money; then, contacting one of these companies to manage the loan details; and finally, setting up an interest rate and payment schedule and consummating the transaction.

It’s not perfect but it is a giant leap from the normal methods of borrowing from family and friends. At least there is a structure to which both are beholden. Using this can help save relationships and actually make it an enjoyable experience!