Posted in ‘Banking’ by Kelly Luff

11 February 2014

A new Facebook app has been released which facilitates peer-to-peer (P2P) lending.

It gives users the opportunity to borrow from their friends at a mutually agreeable rate. The app, which is free to download, enables Facebook friends to request loans from each other, for personal or business use. The borrower gets a cheaper loan closer to home, while the lender gets better returns investing in people they know and trust.

Borrowers are rated using their ‘agree it’ history rather than traditional credit ratings, making the app a viable alternative to borrowers who would otherwise be at the mercy of high interest loan companies due to poor credit history.

Omar Fansa, founder of the app, says, Poor credit ratings and a reluctance to ask for help closer to home means UK residents are increasingly taking on unsustainable debt that ruins lives. By seeking and offering funds within our social network, we can sidestep expensive credit and poor deposit rates and enable borrowing between friends and family at affordable rates”.

There are benefits to lending money as well, says Mr Fansa. The app offers people the chance to support others within their social network and gain a financial return”.

It relies on “the desire to protect one’s reputation and the power of peer pressure to ensure agreements are honoured”.

The people behind the app plan to make advertising pay, rather than take any monies from lenders or borrowers.

There are successful peer-to-peer lending companies already, such as Zopa and Funding Circle, but these have thorough credit checks in place. Zopa now provides 2% of all unsecured loans in the UK. Each time someone applies for credit a check is performed to ascertain whether the applicant meets the P2P lending criteria.

Historically, lenders operating without credit checks have been unsuccessful. The now-defunct Quakle was always on the social side of the peer-to-peer loans spectrum. The site encouraged lenders to get to know their borrowers online. “Quakle believes that social bonds strengthen confidence and make borrowers more likely to repay,” said the site on its launch.

This social feel is what attracted many of Quakle’s users, drawn in by the personal touch and the opportunity to throw others a helping hand. But, unfortunately for many of these lenders, several borrowers did not stick to their promises. A high default rate left many lenders with Quakle out of pocket after the company closed in 2011.

So whilst P2P lending is a good alternative to payday lending and other high interest borrowing, the risks may be too much for some looking to help others out.

Kelly has a degree in Media Arts from the University of Plymouth. A previous competitor in Masterchef, Kelly writes mostly on matters relating to personal finance and banking.

Kelly is a Credit Analyst at checkmyfile.