P2P lending and the democratisation of credit

A new study conducted by associate professor of management Paul Dholakia at Rice University's Graduate School of Management indicates that online peer-to-peer lending Web sites may be more attractive to Americans than traditional financial institutions.

The study analysed a database of 5,370 peer-to-peer loan auctions from the Web site Prosper.com. Not all requests get funded, says the study, but those that do typically yield loans that offer borrowers lower interest rates than bank or credit card companies.

The study also found that decisions made by lenders about credit applications are much less likely to be influenced by race or gender.

Says Dholakia: "These results are substantially different from the documented discriminatory practices of regulated financial institutions in the US, suggesting that individual lenders bid more rationally when their own investment money is at stake."

The paper concludes with specific suggestions to borrowers to increase their chances of receiving funding in P2P loan auctions.

You can download the full report here.