Tuesday, April 22, 2008

Become a money lender

OK, perhaps my dream of a world without money lenders is a pipe dream, but if that isn't a possibility then how about we cut out the middle man and do the lending ourselves? OK, we can't completely cut out the middle man (unless we lend out money to random people down the pub), but we can use a middle man to lend or borrow money directly, rather than effectively lending our money to the bank for a pitiful return.

Enter Zopa, who if nothing else, prove that all the good domain names have been taken. Basically you put your money in their system and offer to lend it out at whatever rate you like and it is lent out to people directly for a small fee. They work out the credit-worthiness of borrowers but you take the hit when borrowers default. The claimed interest rates are better than you'll get in a bank account, although it is still taxable. Saying that, tax isn't taken at source, so it's certainly possible to avoid paying tax on the interest earned (although that would clearly be a very bad thing to do...). It's called social lending and I like the idea.

The only downside is that your money is tied up for a potentially long time, you can't get the money back until the loan is paid off. I've put in a few hundred quid to see how well it works out. If it's a success I'll probably start to put money in on a regular basis. My current return? 11p from interest earned on the money sitting in the account waiting to be loaned out.

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