Recently a friend of mine was facing cash flow problem. He needed a big short term loan (1 million INR) for a very short period (4 weeks). To mitigate the risk, he was ready to mortgage a property. So he inquired about various options.
A) In spite of all the Hap and telemarketing calls Personal Loans generate… none of the banks offered something which suited his requirements. Their terms were:
1) Processing fees 2% flat.
2) Prepayment penalty 4%
3) Minimum duration 50 weeks.
So if he prepaid the loan in 4 weeks, he would have to shell out 2% (processing) + 4% (prepayment) + interest (1.5%) which is exorbitantly high 7.5% p.m.
B) Ideally bank overdraft would have been an ideal instrument, but unfortunately he did not have a current account that can be upgraded to a overdraft account….
C) Credit card would be the next best thing, but his credit cards did not have so high cash credit limits. In-fact most of the Indian banks
D) He did not want to borrow from the informal money lenders, because their shop looked like a den of Goons.
E) Borrowing from Family and friends is also a problem because then you end up owing them favors which he did not want.
If anybody has heard about Grameen Bank, they would appreciate the role access to credit in development and upliftment. And for a country like India which has several communities (Banias, Marwadis) which thrive only on P2P lending, its a shame that there is no inexpensive, legal and organized way for anybody to get a short term credit.
So I started some checks to find out what people in USA do… and there i found Prosper, Lending Club Zopa and plethora of other alternatives.
The idea behind these P2P crowdfunding websites are person-to-person lending—loans without a financial intermediary. Prosper is an online marketplace that allows lenders and borrowers to bid for loans—with fees and rates than can be much lower than those of a lending institution. Since it confines it operations to USA, Prosper can use credit scores to help its users gauge the risks of their deals, and easy-to-follow instructions on the site help clarify the details.
Update: 9th Dec 2013: Recently we have launched Samuhik Loans India’s only free platform to obtain personal loans.