By Vivian Wagner

A general guide to person-to-person lending sites

Choosing the right social lending site depends on your needs, and what kind of borrower or lender you are. Do you have stellar credit – or not so much? Must you have the highest possible interest rate, or would you be just as happy making a smaller return in order to help a one-person business in a third-world country?

Whatever your social lending goals, there’s probably a site out there for you. To help in your search, here’s a quick overview of the major players.

General purpose
Prosper.com, LendingClub.com and Loanio.com are for the most part designed for stranger-to-stranger transactions, which means almost anyone can sign up to lend or borrow. All three facilitate loans between $1,000 and $25,000 for a variety of purposes, including auto, business, debt consolidation, friends and family, home improvement, military, and student and school loans. Both charge roughly the same fees. However, the LendingClub favors lenders, whereas Prosper and Loanio are much better choices for most borrowers.

Prosper.com

Launched in 2006, Prosper, the largest mainstream social lending site in the U.S., operates on a bidding system similar to eBay’s. Borrowers post profiles of themselves designed to attract lenders, and lenders bid on the loans, with the lowest bids winning a chance to fund the loan. Almost any borrower, no matter how shaky his or her credit history, can post a profile on the site, and if the loan isn’t funded the first time, they can try again.

LendingClub

Based on Facebook, LendingClub is a relative newcomer to the P2P business, but it has quickly gained a foothold since its 2007 launch. Unlike Prosper’s bidding platform, LendingClub uses proprietary software to match lenders and borrowers based on common interests. It has high standards for borrowers, who must have a minimum FICO score of 640 and a debt-to-income ratio of less than 30 percent. The site is currently in a quiet period while registering with the SEC and is not accepting new lenders, though borrowers can continue to apply for loans. The site’s relaunch date for lenders has not been announced.

Loanio.com

October-launched Loanio might be wet behind the ears compared with Prosper, the other auction-based social lending community, but Loanio is already making waves with some intriguing new features designed to help borrowers with bad credit. One is a cosigner option. Another option releases a loan when funding reaches 35 percent, eliminating the problem many borrowers have attracting enough lenders to fund the entire amount requested.

Friends and family: Virgin Money USA
Thinking of hitting up a pal or relative for money? Then there’s only one real social lending site to consider: Virgin Money USA.

Known as CircleLending until airline and record industry mogul Richard Branson bought it in 2007, Virgin Money USA is one of the oldest social lending sites. Virgin Money facilitates and documents personal, business, real estate, and student loans between friends and family members. Its big plus: borrowers don’t have to qualify. Just pick up the phone and call the toll-free number or fill out an online form with terms you’ve already agreed upon with your personal lender.

Some mainstream sites, including Prosper, have friends and family sections, but the loan process isn’t much different from stranger-to-stranger lending and probably overkill for what you need. Virgin specializes in people who already have a loan amount, term and interest rate lined up with an individual they know. The fees are highish, but Virgin can make the transaction easy, convenient, and free of much of the awkwardness that usually accompanies borrowing money from your dad or best friend.

Guaranteed Loans
In general, social lending is at your own risk. However, for lenders desiring assurance that they won’t lose money, there are a handful of sites that offer guaranteed returns. The tradeoff? Lower interest rates or longer terms.

Fynanz.com

The student-loan site Fynanz.com offers lenders partial to full guarantees of the original loan amount, depending on the Fynanz Academic Credit Score (FACS) assigned the loan. The proprietary FACS scoring system that Fynanz uses rates loans based not just on credit scores but also on factors like the student’s GPA, course of study, school, class standing, and year of study. Loan guarantees range from 50 percent to 100 percent of the loan.

MicroPlace.com

The investments ” not technically loans ” that you make through this globally-aware microfinance firm have a guaranteed, up-front interest rate, so when you send in your money you know exactly what you’ll be getting in return.

Zopa.com

Founded in 2005 and with operations in several countries, including Italy, Japan, the U.K., and the U.S., Zopa offers U.S. investors federally-insured CDs that are used to lend money to borrowers. (In order to take out a CD, a lender must donate part of the interest to a Zopa borrower.)

Helping the Poor
If you want your money to help a grocery store owner in Afghanistan or a restaurant co-op in Africa, you might want to turn to one of the sites that specialize in microloans.

Kiva.org

Kiva links good-willed lenders with borrowers from third-world countries who need loans to buy animals, equipment, store supplies, or other goods for their businesses. Lenders earn no interest, so it’s best to look at loans through Kiva as charitable investing. (It’s also a nice educational tool if you enjoy learning about other countries.) As your loan is paid off, you can withdraw the money through PayPal or reinvest it.

MyC4

Founded in 2006 and based in Denmark, MyC4 raises capital for entrepreneurs in Africa. So far, 3,500 investors from 53 countries have loaned money to over 1,000 businesses in Kenya, the Ivory Coast, and Uganda. At this time, however, MyC4 doesn’t fully serve North American investors, who cannot withdraw money from their account once they invest it.

MicroPlace

Founded in 2006 and owned by eBay, MicroPlace is an investment firm that looks like a social lending site. Lenders invest money through security issuers listed on the site, and these funds are then invested in specific microfinance projects. Although not a social lending site, MicroPlace highly resembles one with profiles, narratives, and photos of borrowers.

Institutional Lenders
This social lending site focuses on serving institutional lenders, who partner with the site to offer borrowers competitive loans.

GlobeFunder

GlobeFunder offers what it calls “Direct-to-Consumer or D2C” loans and microfinance loans. Borrowers can borrow up to $25,000 in an unsecured loan. Lenders at the moment are limited to institutional lenders, but the company is preparing to launch an individual lender platform.

Student Loans
Many students are turning to private loans to fund their education, often as a supplement to governmental loans. Fynanz.com and GreenNote.com specialize in student loans. Virgin Money offers a special brand of family-backed student loan.

Fynanz

Fynanz offers a loan auction marketplace similar to Prosper’s. Students post profiles and request their desired loan amount. Fynanz assigns the loan a Fynanz Academic Credit Score (FACS) based on factors including the student’s GPA, course of study, and school, and then opens the listing to bids from lenders. Bids ultimately determine the interest rate.

GreenNote

Brand-new GreenNote, launched in June 2008, uses a students’ social network to pay for college. Students post their loan requests and then contact potential lenders – friends, family, community leaders, and anyone else in their extended social network – to help fund the loan.

Virgin Money USA

As with its “family and friends” loans, Virgin’s student loans are agreements made offline between a lender and borrower and brought to the table for Virgin to document and service with automatic electronic payments. That means a student loan can be as flexible and have interest rates as low as the lender (usually mom, dad or another relative) will allow. Rates can be below market and the payment schedule flexible to the point of long deferments or complete forgiveness, at the lender’s discretion.

Virgin offers lots of helpful guidance and advice such as its “œlender blender” calculator for students using P2P loans as a supplement to scholarships, grants, and federal loans.
The Student Payback program lets students borrow from the same lender up to 10 times over the course of their studies for one servicing fee, handy for parents who would like to make multiple loans to their student over several years’ time. The downside: Virgin doesn’t service loans made up of money from more than one source. In other words, your aunts, uncles and friends can’t pitch in, too, and receive monthly individual payouts from Virgin.