peer to peer lending

Peer to peer lending
Over the last few years a new area of lending has been increasing in popularity – peer to peer, or social lending. The idea is that people who want to borrow money are put in touch with those who will lend it. Here’s how it works and how it compares to borrowing from banks and building societies.

Is peer-to-peer lending too good to be true?

Is peer to peer lending worth the risk?
“I’m thinking of borrowing through a peer to peer site. Is it worth the risk?”

Peer-to-Peer Lending
Can you really get 7% returns?


Legal Documents and Info About Lending

Promissory note
“A promissory note is a legal instrument (more particularly, a financial instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. If the promissory note is unconditional and readily salable, it is called a negotiable instrument.[1]”

Lawful Status of Promissory Notes

Promissory Notes Legal Forms

How to Write a Legal Document for Money Owed

Sample of Personal Loan Agreement Between Friends or Family Members
“On June 6, 2013, I, John Doe will lend Robert Doe a sum of $12,000 in the form of (cash, check, traveler’s check, or money order), which is to be repaid in full by December 6, 2013.
Payments will be made over a period of 6 months, starting on July 6, 2013 and ending on December 16,2013. The interest rate is 5% and as a result, each monthly payment will amount to $2,100.
Every monthly payment must be made before or on the 6th of every month. Any late payments will result in an additional fee of $50.
Robert Doe, (Borrower) John Doe, (Lender)
June 6, 2013, (Date) June 6, 2013, (Date)
_______________(Signature) _______________(Signature)

Additional Measures of Protection

In addition to signing a contract outlying your basic agreements, you can go further by deciding on terms of default, which will describe what will happen in the even that the borrower is unable to pay back his loan. The most common terms of default usually include additional fees, a rise in the interest rate or collateral, which is a possession that the borrower is willing to give up when he or she can’t pay the loan back in time. Most common forms of collateral consist of cars, homes and jewelry.

Another great safety measure is getting your contract notarized. In this case, both the lender and borrower must appear before notary public and sign the contract in a third parties’ presence. Although there is a small fee, it is well worth it for the additional security.”


Loans of love: how to borrow from family and friends



Loan Agreement

United Kingdom Promissory Note

Create your free Promissory note


Promissory Note FAQ – United Kingdom
“Who is the Borrower?
Who is the Lender?
What is the governing law for a Promissory Note?
What is the Principal amount?
What is interest?
What does compounded mean?
What is a demand promissory note?
What is the difference between a Promissory Note and a Loan Agreement?
What is the Term?”





Make an Authorization Letter


Find a Notary

The Notaries Society




Social Collateral


Trust and Social Collateral
“This paper builds a theory of trust based on informal contract enforcement in social networks. In our model, network connections between individuals can be used as social collateral to secure informal borrowing. We define network-based trust as the largest amount one agent can borrow from another agent and derive a reduced-form expression for this quantity, which we then use in three applications. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, whereas loose networks create bridging social capital that improves access to cheap favors such as information. (2) For job recommendation networks, we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates. (3) Using data from Peru, we show empirically that network-based trust predicts informal borrowing, and we structurally estimate and test our model.”

Defining Social Collateral in Microfinance Group Lending
“Microfinance group lending with joint liability allows asset-poor individuals to replace physical collateral by social collateral. The literature on microfinance lacks a rigid framework for analyzing the consequences of using social collateral for borrowing behavior and repayment. This paper fills the gap by providing a theoretical framework to evaluate the impact of social collateral pledged by group borrowers on group lending repayment. Our approach is novel as we take into account the external ties of group borrowers, i.e. the social ties linking borrowers to non-borrowers from their community, whereas previous work in this field has looked solely at internal ties (i.e. between group members). One of the important features of our model is that we stress the impact of network configuration on the amount of social collateral pledged. Our model shows why the group lending methodology works better in rural areas than in urban areas, namely because rural social networks are typically denser than urban ones, which results in higher social collateral.”

Trust and Social Collateral
“NBER Working Paper No. 13126
Issued in May 2007
NBER Program(s): LS
This paper builds a theory of informal contract enforcement in social networks. In our model, relationships between individuals generate social collateral that can be used to control moral hazard when agents interact in a borrowing relationship. We define trust between two agents as the maximum amount that one can borrow from the other, and derive a simple reduced form expression for trust as a function of the social network. We show that trust is higher in more connected and more homogenous societies, and relate our trust measure to commonly used network statistics. Our model predicts that dense networks generate greater welfare when arrangements typically require high trust, and loose networks create more welfare otherwise. Using data on social networks and behavior in dictator games, we document evidence consistent with the quantitative predictions of the model.”

Trust and Social Collateral
“Dean Karlan Markus Mobius, Yale University Harvard University and NBER
Tanya Rosenblat Adam Szeidl, Iowa State University UC-Berkeley, October 2008”
The Social Collateral Approach to Social Capital
“The social collateral approach to social capital provides a tractable framework to model cooperation in social networks. The approach was explored in a series of papers by Attila Ambrus, Dean Karlan, Markus Mobius, Tanya Rosenblat and Adam Szeidl. The main applications have been in modeling trust and risk-sharing.”


Peer-to-peer carsharing

Peer-to-peer carsharing