Social Internet Lending is Dangerous
A new study shows that Brits who want an alternative to high interest rates are turning to Social Lending over the internet. The report states thatt 74 per cent of UK adults may consider getting a loan or lending through a social lending community.
While it is common for consumers to lend money between friends and family, it can be dangerous to use the Internet for Social Lending.
Social Lending over the Internet, is where people lend and borrow loans, side-stepping the banks, to get earn better loan rates or returns. While it looks like a fair deal on the surface, there are many red flags.
Social Lending is not like other social networking sites like LinkedIn, YouTube and MySpace. Borrowers and lenders could find themselves in danger from fraudsters, credit consumer damage, and theft.
The study looked at a number of Social Lending players, and used Zopa, the online marketplace, as a case study. Zopa, set up by members of the team that launched Egg, has attracted 105,000 members in the UK.
James Alexander, co-founder and CEO of Zopa, believes that not only are people looking for a better financial deal, but also for a way to make their money human again.
“People are already seeing the benefits – for example, those lending at Zopa have since launch received about a 50% better rate of return on money they’ve lent out than if they’d left their money in the best savings accounts such as ING Direct or Egg.”
However, unlike ethical lenders who operate over the internet, working as brokers for their clients, Social networking is not traceable. It is as easy for an identity theft fraudster to walk off with money as it is for them to steal money from consumers and banks. The difference is, there are regulations to protect money stolen from banks, bank clients, and financial institutes. These safeguards are not in place to protect a UK consumer who lends to a foreign citizen, or to someone who has simply vanished.
There is also the problem of losing the money invested if the borrower declares bankruptcy.