Personal loans

personal loans, la times, engagement ring financing

They say what goes around comes around, and this couldn't be truer when it comes to peer to peer personal loans. In ancient history, before banks were invented, money was lent from one individual to another. If someone needed money to build something or expand his business, he would approach someone who he knew had some money to spare. It may not have been called it at that moment, but this was the origin of peer to peer loans. Of course, as society became more sophisticated, institutions were created with the specific idea of lending money to people who needed it, earning a profit on that operation by charging interest on the funds lent. Most of these lending institutions got their money, in turn, from other people in the community who wanted to have a place to put their money and earn interest. In turn, these funds would be used to fund the loans to other people who were in need of money, in what would now be considered a personal loan. And, needless to say, they got to retain the difference as their profit.

Today, an old but new phenomenon has resurfaced, where holders of deposit funds are finding it more attractive and profitable to make personal loans directly to the people who need them. Eliminating this middle man, or intermediary, is a process known as disintermediation. Today's peer to peer personal loans are not limited to those in the same locale, since they can be administered on an online marketplace, where people in need of funds can be matched with those who are willing to lend. Many times, these sites may take the form of auctions, where the lender can compete with other lenders for the borrowers they want. The site connects the lenders and the borrowers in an auction process, very much like Ebay for goods, where the lenders compete with each other to provide the lowest rate to borrowers, and borrowers compete with each other to obtain the best rate for their personal loans. Both parties gain an advantage by eliminating the middle man.

Lenders especially like the concept of peer to peer personal loans due to the unique risk arrangement available. A lender may structure his investment so that only a small portion of his total investment is lent as a personal loan to each individual borrower. A good example would be a young man who decided to take out a loan for $1,000 for an engagement ring for his fiance. Many investors on the peer to peer lending site would have $1,000 they are willing to invest. A lender may only lend $100 to this young man's romantic endeavor. He will look for someone else, who is perhaps planning to use his personal loan to consolidate his debt and lend him $100, and then find someone else who plans on needed repairs to his home and lend him $100, and so on.See more info at la times.

His $1,000 investment is, in this manner, going to be spread out over ten different risks, so that the overall risk is much lower than it would otherwise have been. Borrowers, in this scenario, have an advantage since they will have that many more lenders bidding for their personal loan.

When an idea has a sound foundation, it is no surprise that it resurfaces as society faces new challenges, and this is exactly what has happened with peer to peer personal loans. It is also a best way to get engagement ring financing.

10 Feb 2010

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