Could this be made to work?

Asiacat

I notice on this forum that many people are relying on payday loans and end up having to pay sky high interest rates.

On the other hand the investment forum shows many forum members struggling to get a 5% return per annum on their savings.

Would it be possible with appropriate safeguards in place to bring forum members together helping out those who wish to borrow money and those who have cash available to invest.

For example a typical pay day loan advance of say 300 pounds requires payment of the full amount borrowed plus an extra 30 pounds interest in 2-3 weeks.

Lets say a debt free wannabe member wishes to borrow the 300 pounds. Rather than going to a pay day loan company somebody with money to invest forwards them the money with an agreed repayment schedule of say 82.50 per month for four months.

The borrower gets a much more reasonable 4 months to repay the loan and the investor gets 10% interest over 4 months.

Both parties come out of it a winner

Could this be made to work?

carslet

this is what zopa do.

but for example i give you £1000 what happens if you dont pay it back?

Asiacat

carslet wrote: »

this is what zopa do.

but for example i give you £1000 what happens if you dont pay it back?

That is the sticking point.

With appropriate safeguards is what I said though whether or not this is practical is the million dollar question.

Tixy

Usually the people who are having to rely on payday loans are ones who have a poor credit file as a result of not paying back previous credit agreements on time.

Usually the people posting on the investment forum would be a bit more financially savvy than to lend money to such high risk people.

They are struggling to get more than 5% in safe low risk investments. Lending to individuals is always much higher risk, and to those who are struggling financially (or have done so in the past) its even higher risk.

Peer to peer lending such as zopa can work as an investment option - but they generally only lend to people with a very good credit history, and the investments are spread over a portfoilo of borrowers.

HappyMJ

The money invested at 5% is generally lent to others to earn the investment provider an income and pay out the investors. 5% these days is quite good and actually taking a small risk that part of the capital may not be paid back. Risk-free investments only pay about 2% maybe 3%.

quantic

The trouble is, the people who often borrow from payday loans are often the most risky people you could lend to, hence them taking the last option available to them. I think you would really struggle to find people who would lend their money at reasonable rates of return.

I would personally rather have a guaranteed 4% than maybe not even getting the original capital back - let alone interest.

Tixy

OP I suppose really what you are suggesting is something very similar to a credit union - an MSE credit union if you like, all be it without the usual requirement to start saving before you borrow.

Even if you brought in the idea of saving first before you borrow I still don't think it would work. Credit unions work best when they are either local area specific or sometimes job industry or company specific. The idea being that the borrower feels a greater moral obligation to repay the money as it belongs to their neighbours or colleagues etc.

FireWyrm

I lent my friend some money. She promised to pay me back...I didnt even ask for interest.

Do you know what happened? I got nothing. If my best friend since childhood couldnt/wouldnt pay back money lent to her in good faith, what chance do you think I have lending my money to Joe Bloggs from S!!!!horpe?

Your idea wont work. Sorry.

There's a reason why PDLs flourish and a reason why they charge hefty interest. For every loan they get back, there are several that default to a greater or lesser extent. They cover their losses by adding interest to 'responsible' debtors and charging massive fees for late payment.

Therese1

Dunno when....but I was taught "never lend money unless you can afford not to see it again". I have lent money to family and friends -and haven't always had it paid back. Only the ones who have paid back have been allowed to borrow again from me.

Delree

FireWyrm wrote: »

I lent my friend some money. She promised to pay me back...I didnt even ask for interest.

Do you know what happened? I got nothing. If my best friend since childhood couldnt/wouldnt pay back money lent to her in good faith, what chance do you think I have lending my money to Joe Bloggs from S!!!!horpe?

That's a harsh story, hope your friend found the money worth losing someone who was obviously a great friend and those are priceless.

Treadmill

The default rate on PDLs is through the roof, Wonga alone have written off a million loans. It's a good idea in principle but it just wouldn't work in reality.