gmsc’s money tips #10:

One of the big things over the past few years has been social networking sites, with Facebook and Myspace getting the lion’s share of the attention.

However, there’s been another, quieter, but nonetheless powerful kind of social networking website going up - person to person lending, also known as social lending or P2P lending.

The easiest way to think of these sites is in a manner similar to eBay. However, instead of buyers, you have borrowers, and instead of sellers, you have lenders. Also, instead of bidding a price up, you’re often bidding an interest rate down.

It starts with borrower(s) asking for an amount of money they need, and a maximum interest rate they’re willing to pay. As part of the bid, not only are the reasons for their request given, and questions often answered, but information about their past credit history and other relevant and important details, as well.

At first, the borrower(s) have to wait and see if lenders will put up the fulll amount. Usually, dozens (or even hundreds) of lenders will offer up a small part of the amount (say, $50 to $100 when a loan of $1,000+ is requested), and at the maximum interest rate offered.

When enough loans are offered, lenders can still offer money, but they must be competitive by offering their newer money at lower interest rates. As newer money comes in at lower interest rates, lenders who offered money at higher interest rates get bumped off the list, and must offer their money at the same or lower rate to get a part of the loan.

There are already an amazing amount of social lending sites out there already, including these:

Community Lend

Fynanz

Globe Funder

Lending Club

Loan Back

Loanio

Prosper (my personal choice)

Virgin Money

(Note: Due to current market conditions, many of these companies are restructuring, and some of them may not be accepting new members at this time.)

Prosper (my choice, as mentioned above) has some great detailed introductions to the concept, and their site. Start by checking out the FAQ (this is the Prosper FAQ, but all of them should have a FAQ, as well), and consider it carefully.