Last summer, I wrote about two social lending sites, one for money and one for stuff. Borrowme seems to have gone under, without ever building up any steam. But Prosper seems to still be functioning well, and hasn't been totally swamped by the mortgage meltdown.
When I wrote about it, I hadn't put any of my money into Prosper, but I did so in the fall. I've now made 36 loans over the course of the past year, all of them for $50. Two of them have already been repaid (ahead of schedule) and two of them are 3+ months late, and barring a miracle, likely to go into default. Netting out the defaults, I've made a little more interest than I'd have gotten from the bank, but the difference is probably under $40. So, not a particularly good return on the time spent reading through loan requests. Although there's a certain fascination with reading people's stories... I still think the real potential is for loans among people with 2nd and 3rd degree real life connections, but I see little evidence that's what's happening.
I'm slowly moving almost all of my real banking into the online world. My main checking account is now at Ebank, which I love because I can take out money from any ATM without a fee. I'm trying to figure out whether I think it's unethical to keep our savings at Countrywide, which is offering awesome savings rates, presumably because they're desperate for deposits to keep from sinking under all their bad loans. (Yes, it's FDIC insured.) But they've got a reputation for being particularly unhelpful to borrowers in trouble.
D has been saying that he wants to save his money for a Nintendo DS. I'm not thrilled at the idea of a handheld game system, but if he has the willpower to save that kind of money on a $1 a week allowance, we're going to allow it. I'm trying to convince him to open an account at a nearby bank that offers generous rates on kids' accounts, but he likes having the piles of coins to play with and count. We need to figure out if they offer safe deposit boxes -- if so, we're going to say goodbye and good riddance to SunTrust.
I was at a conference last week on accounts, assets and access. It was a real eye-opener for me. Call me naive, but I hadn't realized how much money banks were making off of poor people on overdraft and late fees. Now that it's been pointed out, it seems obvious -- the dollar amounts that low-income people borrow are typically so low that even high interest rates don't amount to much in dollar terms. The killers are the fees.
Here's an example of a card advertised as available to people with bad credit. Not bad interest -- only 9.9% APR. But check out the fees -- $29 set up fee, $95 one-time fee, $48 annual fee, $7 monthly fee. And if you're in this situation, you probably don't have this cash on hand, so all of these fees are charged to the card when you get it. So if you get the minimum possible credit limit of $250, your card will come to you with a balance of $179 and available credit of $71. Oh, and they charge $11 for each autodraft (which actually costs them less to process than a check) and $25 each time they raise your credit limit.
Compared to that, a payday loan with a 100% interest rate doesn't sound like such a bad deal.