Banks are hated because they are seen as running a vampire's relationship with their customers. Most consumers dread taking a bank loan because most bank loans are tied to a property usually a house or other valuable property otherwise referred to as collateral. Another reason is that bank interest rate charges are usually high and can be affected by prevailing economic factors like inflation and exchange rates.



In case of a default on the part of the borrower he loses the property. A lot is going to change in the way we can access credit thanks to the internet and innovative business minds and peer to peer lending.

Consumers usually try to look elsewhere before approaching a bank for a loan in order to avoid loses in case of default in payment. Family members may chip in and friends too but they way it is with money most people are reluctant to do so in order to protect the precious relationship that may be damaged in case of non-payment.

The creation of cooperative credit unions helped a good section of the public to access loans on softer terms but qualifying for a loan was usually based on first being a member and having shares in the cooperative. Since most of these cooperatives were tied to one's professional career it meant that those who were self-employed were basically left out. But cooperatives still have their place.

A new trend that is giving banks a run for their money though still not as widespread and similar to borrowing from family and associates is the concept of community lending or peer to peer lending. Peer to peer lending runs entirely on the internet but all the necessary verifications like credit checks are done to eliminate fraud.

The website allows a borrower to post their need and how much they are willing to pay as interest rate, a willing lender bids and the borrower chooses the winning bid. The website charges the borrower a fee plus the loan and the lender an annual fee on the amount. The middleman or the bank is eliminated and charges are kept low. Two well known sites are proper.com in the United States and Zopa.com in Britain. There are plans to build one in Canada too, which could be launched as soon as fall 2007.

As far as low interest rates go peer to peer lending is giving banks a run for their money. Canadian banks charge between 9 to 14.25 per cent on lines of credit but prosper.com loans can be as low as 7 per cent but they are not available in Canada. Most borrowers use them to pay off credit card debt and for other small investments. A disadvantage is prosper.com can only lend up to us $ 25,000 only and lenders may not ask for collateral in order to lower rates.