The banking landscape for consumers is changing. With banks restricting private loans in the ongoing finance crisis, consumers are searching for alternatives to a bank loan. New Media plays a substantial role in their search and offers new possibilities for managing their financial needs.

Personal investing for private investors

Borrowing money from an individual without a traditional financial institution involved – peer to peer lending platforms enable this type of loan in an online community, with individual lenders allocating funds to a specific borrower through an online marketplace. With registered social communities and the online assessment of individual members’ credit ratings, peer to peer platforms such as Prosper in the USA, Zopa in the UK or Smava in Germany are an increasingly popular source for private investments and loans.

Within these platforms, you will find stories such as that of 25-year-old Andre Michel, who is registered with the German platform, Smava. Andre is currently living in Hamburg and needed a loan of EUR 10,250 to buy a car. Smava provided Andre the possibility to post personal details such as his job, a picture and his financial situation – the kind of information which does not show up in credit reports. Within 5 hours, Andre had attracted 35 borrowers, funding the sum over 60 months at an interest rate of 13.8%.

With banks being more restrictive on lending and consumers turning their backs on banks to search for alternatives during the current economic situation, peer to peer lending is likely to become more popular. New Media is the key to enabling online platforms which incorporate social communities and lending money in a personal way.

PROS:

- Peer to peer lending is a personal alternative to bank loans

- Loans and investments are set up quickly and directly with no middlemen involved

CONS:

- Investors face exposure to defaults as their loans are not typically insured

- Posting a financial project and assessing the borrower’s financial rating requires time and effort as well as financial knowledge from both the lender and borrower