A new entrant on the short term loan market stage is a company that claims to be like an eBay of the short term loans world. It offers an opportunity both for individuals to lend and borrow in the same sort of flexible and online way that has characterised the payday sector of the last few years.
At first sight this activity seems no different from any bank. The Lending Well, as the new company is called, borrows money from individual lenders at rates which are not startling, but certainly better than what can be gained from any high street bank – 12% is the latest quoted figure. Then it lends this money itself to borrowers in need of a quick fix cash loan, but the interest rates are certainly a little higher – rising to more than 2000% depending on the conditions of the loan.
The Lending Well calls itself a “peer to peer” payday lender, although quite what this term means is a little unclear. Presumably, it refers to the opportunity for ordinary citizens to lend or borrow small amounts of cash, depending on which side of the debt line they are situated.
The Lending Well does not guarantee the same security to lenders as an ordinary bank, which is why the interest rates are substantially higher. The company has “outsourced” some of the risk of short term loans to the people who are providing the cash.
The risks are certainly significant as, although the company claims to carry out credit checks and has a policy of making sure that a borrower has a job and a debit card linked to a bank, it will not be too fussy about declining applications for a loan from people with a bad credit history.
The company also allows rollovers for a further two months, although the interest on the original loan has to be paid back before each extension and the capital amount is then rolled over.
In the event of a default, the adventurous and brave lender to this scheme is not supposed to lose any of their own principal – only the interest. The principal remains until the loan is eventually paid off.
Are there any takers?