One that's becoming more and more popular is the "peer-to-peer" loan, Early Show money maven Ray Martin pointed out Thursday.
Some $647 million changed hands that way last year.
According to Martin, peer-to-peer lending is exactly what it sounds like -- people lending other people money, no banks involved.
However, it's much more formal than you handing your neighbor/uncle/stranger a check. The transaction takes place online, and each Web site offering the service has its own twist.
Some allow potential lenders to "bid" on loans, others focus on formalizing loans between family members.
When you go to one of the Web sites, you can review potential borrowers. Frequently, the folks requesting money include a photo, along with specific details about why they need the money.
After researching borrowers, you select whom you would like to assist, then the Web site takes over.
All of the sites set up legitimate, formal loans. That means you have to provide personal information similar to what you provide a bank when signing for a loan.
Agreements are reached, paperwork is signed, and if the money isn't repaid, the borrower will be handed over to a collection agency, and the failure to pay will appear on credit reports.
Experts predict the $647 million in peer-to-peer loans last year will grow to $5.8 billion by 2010.
Martin says the sudden interest in such loans can be explained in two words: credit crisis. Homeowners who can no longer qualify for a home equity loan, or students who can no longer secure a private school loan, for instance, are looking for alternatives. And borrowing from peers is simply becoming more socially acceptable in this age of eBay and social networking sites, notes USA Today.
Martin observes that many people are borrowing to pay off credit card debt, as well.
Why would anyone want to lend a stranger money?
Basically, there are two reasons, Martin responds: First, there's the opportunity to earn a larger percentage on money than might be earned elsewhere. For instance, on the most popular peer-to-peer site, Prosper.com, you can earn more than 10 percent or more on your investment. In today's market, that might be appealing. Second, many people who use the sites report they like knowing that their money is helping someone else pay off a credit card bill, buy an engagement ring, attend college, etc.
There's another potential benefit of these sites: As mentioned earlier, some specifically cater to families and circles of friends. Lending money to someone you know well can create a tense situation for both parties. Using one of these sites formalizes the process and helps create some distance between emotions and the business at hand.
There's always the risk that someone won't pay the loan back, but there are some precautions in place: Some of the sites won't accept borrowers with sub-par credit scores, others rate borrowers to help prospective lenders asses their credit risk.
The loans probably aren't something someone would want to use a long-term investment vehicle. But if you want to make a smaller investment, want to help someone else, etc., rest assured that there are sites that are run in a businesslike manner and are offering legit services/products.
If you are considering becoming a lender, there are three things you can do to protect yourself: