Due to the recent economic problems, banks have become extremely careful and rigid in giving out loans. Most of the banks have tightened the grip on borrowers,  canceling home-equity loans and cutting limits on credit cards. This has opened a new way for Americans who are now turning to a timeless source of credit: one another.

Nowadays, person-to-person lending, facilitated by Web-based companies, is becoming increasingly popular. Due to tightened credit situation prevailing, person-to-person lending has turned into an attractive alternative.

Although there are many companies offering such services but three major players dominate the market. These are Virgin Money, Prosper and Lending Club.

These companies provide loan documents and automatic debits from the borrower’s account.
All companies offer different terms and conditions as well as different offers. Virgin Money offers to provide loans between people who know each other. Thus if you want to take a loan from your parents, you can get them on a conference call with a Virgin Money representative and talk through the interest rates and terms.

It will be the responsibility of Virgin Money to write up the paperwork and collect the payments. The cost varies from $99 to $2,000, based on the complexity of the loan and how much the company does. Virgin Money also collects a fee each time a payment is made if you have it process the payments.

Virgin Money allows you to decide the conditions and doesn’t dictate the terms, though it will provide warnings if the loan’s interest rate is so low that it’s likely to trigger tax problems or so high that you’re likely to run afoul of state usury laws. The agreement between the borrower and the lender dictates the interest rate and the repayment schedule.

On the other hand, Lending Club or Prosper work to get strangers together in order to finance small businesses, refinance credit card loans and provide student loans. The privacy of both borrowers and lenders is protected so there is no chance that an anxious lender will directly contact a delinquent borrower for payment.

The sites pull credit reports in order to protect lenders. The interest rate and the amount to be given are then decided keeping in view the credit report.

Thus the borrowers still have an opportunity to get loans in strict economic climate. Friends and family can also help each other out, legally, by going for a contract and thus eliminating the chances of backing out.

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