NO SAFETY NETS FOR ONLINE LENDERS

ALARM bells should begin to ring for anyone without money to burn who is tempted to lend money over the internet to anonymous borrowers.

Big banks have centuries of experience of granting loans and are extremely careful who they deal with.

Yet they still make mistakes, finding themselves burdened by bad debts.

The scope for defaults and simple fraud looks boundless. It is hard to see what incentive there is for borrowers to make payments once the money is spent.

And what happens when the debts do go bad? Who will go around knocking on doors to collect payments? Banks employ armies of staff to chase payments, and then to deal with delinquent borrowers.

The money brokers in the middle will not concern themselves with getting your money back for you. They will be happy to take their 1- per cent commission.

That is where their money is being made.

And if it all does go horribly wrong, what protection is there for those who lose savings? Well, none.

You're much better to stick with a decent return from a bank or building society. In the UK we are blessed with strong banks, which rarely collapse.

This is not the case elsewhere in the world. In the US, the savings and loans industry was almost brought to its knees through bad debts.

But at least if a bank does turn bad, investors receive compensation up to a certain limit. If an online lending service goes under, there will be no sugar to sweeten a bitter pill.

Copyright 2005 SMG Sunday Newspapers Ltd.
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