Who needs a bank to get a loan when you’ve got friends and strangers?  

With the credit market taking its time to heal, Facebook attracting everyone from teens to grandmoms and the Internet becoming more of an accepted platform for financial transactions, the peer-to-peer or social lending industry is expected to skyrocket over the next few years. Research firm Celent says the overall P2P (that's peer to peer) market—where individuals borrow and lend to one another—will climb 800% from now through 2010 to $5.8 billion in loans.

And for good reason. P2P sites offer the convenience of little to no paperwork and no loan officers. Instead they offer a direct network for borrowers and lenders.  And whether you’re hoping to earn more than the measly 2 to 3% interest (if that) on your savings, or if you need a loan for a car, house, college, small business or a new snow blower, there are reasons to consider these social lending web sites. Here’s what a few of the major ones have to offer.

Virgin Money
Formerly Circle Lending, this friends and family lending web site has experienced an almost 100% jump in the value of loans outstanding since the company took on new ownership in October 2007. Currently $390 million is exchanging hands under its loan agreements, which range from mortgages to student, business and personal loans.  A “handshake agreement” starts at $99 and is a mutually agreeable contract.

Participants tend to like Virgin Money’s arrangement because it takes the hairiness out of handling money with friends.  The company caters and authorizes the agreement, and facilitates the repayment schedule. If the borrower, say, your cousin Joe, defaults, there’s potential legal recourse, too.  Another bit of security news for lenders: The current default rate for Virgin Money social loans is just 5%, and just 1% for social mortgages. While there’s no minimum loan size, the company’s median loans are $15,000 for personal loans, $30,000 for business loans and $200,000 for home loans.  Plus, the average interest rates (yes, that’s right, you can earn interest from your sister-in-law or college roomie) are 5.5% for personal loans, 7.4% for business loans and 5.7% on home loans.

The site’s temporarily on hold right now for new lenders while it undergoes an SEC review. Typically, though, lenders search through Prosper’s loan listings and bid for various requests (ranging from $50 to $25,000) by stating how much interest they would be willing to charge the borrower, whose credit standing is disclosed. Think eBay, where you can see the seller’s history. (Stock Quote: EBAY) When the site was accepting new lenders, it boasted an average return rate of 8% for "prime loans," where borrowers have grade-A credit.  There are fees for both borrowers and lenders.  For borrowers: a closing fee of 2% to 3%, based on credit grade, or a $75 flat fee, whichever is greater. Borrowers also pay fees for using outside e-payments and for paying late.  Lenders: a yearly loan servicing fee of 1%, on top of any fees associated with hiring a collection agency in the event of a default.  There’s no guarantee you’ll get your money back, let alone earn interest.

Lending Club
This lending site works more like Match.com (Stock Quote: IACI), hooking up borrowers and lenders based on certain financial criteria like how much debt the borrower wants to take on and how much financial risk the lender can stomach. The site refers to itself as a social lending network, and to that end has even started integrating itself on Facebook. Lending Club's current average rate performance is roughly 9%. Though, just like Prosper, there’s no guarantee. There are fees here, too. Borrowers pay a processing fee of up to 2%, based on credit grade, on top of possible missed-payment or late fees.  Meantime, lenders must pay an annual processing fee of 1%, in addition to collection-agency fees, when applicable.

Kiva is an online small business micro-financer that vows to help fight poverty in developing countries where residents have little to no access to debt financing. Micro-financing channels like Kiva empower budding entrepreneurs across the world and offer lenders a way to be actively charitable. Lenders "can actually see the person they are lending to. There's a personal connection," says Kiva spokesperson Fiona Ramsey. Each loan at Kiva has a different term. On average, repayment to the lender is made within 12 months. You can lend as little as $25, though the average loan is about $500. There’s no interest.

Microplace is Ebay’s way of competing with Kiva. The site says lenders can invest with just $20 by opening an investment account somewhere, say, Schwab or Fidelity.  Interest is not that high, maybe 1 to 3% on your investment, according to the web site.  But the assumption is that, much like at Kiva, you want to make a social impact, not big bucks on your loan.

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