Issue Date: August 3, 2008
Loaning to loved ones? Get formal
Peer-to-peer lending sites can help you set up a formal loan.
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You know the rules: Never loan more than you can afford to lose. And if a friend defaults on a loan, it can jeopardize your relationship. To protect all parties, formalize the loan with help from peer-to-peer lending sites. The following three sites can set up family and friend loans, with customized terms and repayment plans. Here's how they work:
virginmoneyus.com. For $99, you can arrange a private loan to friends or family members to help pay for, say, a car or wedding or to pay down credit card debt. Virgin drafts a simple loan agreement and repayment schedule. A more full-service plan to manage repayment starts at $199, plus $9 per payment to service the loan.
prosper.com. Modeled after eBay, the site lets borrowers create a prosper.com listing to request a loan up to $25,000 and invite friends (or other Prosper members) to bid on slices of the loan. Lenders willing to earn less interest can reduce the rate of the loan. The site charges the borrower 1% to 3% of the loan upfront, depending on credit score, and the lender has a 1% annual servicing fee.
us.zopa.com. The site charges no fees, and interest rates on five-year loans start at 8.49% based on good credit ratings. Borrowers also can ask friends to buy one-year CDs from Zopa (minimum investment: $500), and the principal returns to the lender/investor when the CD matures, along with an annual yield of 3.75%. The investor can help further reduce the borrower's monthly payments by "donating" some or all of that yield.
CNBC correspondent Sharon Epperson is the author of "The Big Payoff."
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