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A New Look in Family Loans

Article

As hard times get harder, job losses mount, and banks get stingier with loans, chances are getting better are that a family member may ask you for financial help. Experts often warn about the dangers of lending money to family members and usually recommend treating any money given as a loan.As hard times get harder, job losses mount, and banks get stingier with loans, chances are getting better are that a family member may ask you for financial help. Experts often warn about the dangers of lending money to family members and usually recommend treating any money given as a loan.

As hard times get harder, job losses mount, and banks get stingier with loans, chances are getting better are that a family member may ask you for financial help. Experts often warn about the dangers of lending money to family members and usually recommend treating any money given as a loan. That may be good advice, but setting up a formal lender-borrower relationship between family members can get sticky and can lead to hard feelings.

Enter “peer-to-peer” loans, set up by companies like Virgin Money USA, a division of billionaire Richard Branson’s Virgin Group. Through Virgin Money, borrowers can arrange to get loans from friends and family members, building a loan proposal that bypasses a lot of the awkwardness of asking for money. The company will also take care of the nuts and bolts involved, including loan documents, payment processing, and year-end statements. In addition to substantially reducing loan defaults, the arrangements offer some goodies on both sides of the deal; lenders get a more generous interest rate than they would on a savings account, and borrowers pay lower rates than they would to a bank or other traditional lender.

Peer-to-peer loans have been gaining in popularity as the flow of loan money from traditional lenders has dried up. Virgin Money has arranged more than $370 million in peer-to-peer loans since 2001, with about $170 million of that total added in the past 12 months. That amount, however, is just a tiny fraction of the Federal Reserve’s estimate of $89 billion in financial transactions that occur between family members each year.

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