The Death of Payday Loans?

Problem of expensive Payday loans

1500% APR for a short term loan! Who are they kidding? And yet people are turning to payday loan sharks on a regular basis. Banks are not helping either. Short term loans are just too much paper work and not profitable.

What we need is a cheap alternative. Wouldn’t it be good to have a market place where borrowers can ask for a cheap loan and individuals can lend money safety? Well now there is!

-- Update May 2017:

Unfortunately due to US financial regulations Btcjam and some other Bitcoin lending sites have had to close. If you have funds there you are still able to remove them (at time of writing). Hopefully someone else will create a new lending platform, hopefully outside of the USA.!

See this alternative

Btcjam.com is a eBay like website where individuals and businesses can come for loans from 7 days to 1 year. This is an international websites so borrowers come from all over the world.

How it works

When you register on the site you can verify your identity. The more proof you give that you are a real person, the less risk there is that you will not pay back the loans so you can get a better interest rate. Rates of 14% apr to 24% apr are common.

Hold on! What is Bitcoin?

In simple terms Bitcoin is an Internet currency that can be used to buy stuff or be converted back to ‘real’ money like Pounds, Dollars or Euroes. When people buy Bitcoin the price goes up, and when alot of Bitcoin are converted back to regular ‘Fiat’ currency the value of Bitcoin goes down. Just like normal currencies.

The difference with Bitcoin is that there is no central Bitcoin bank to dictate who can use the currency and who cannot. This means that Bitcoin travels between countries very easily.

One point to be aware of with Bitcoin is that because it is a new currency the cost of Bitcoin can jump and fall quickly.

Where to spend Bitcoin

If you raise a loan with Bitjam you will receive money in the form of Bitcoin. At the time of writing not many business take Bitcoin as payment, however some do, and you can use – this site- to find businesses near you that do.

Another option is to use a website like giftoff.com that will take your Bitcoin and exchange them for vouchers. My favourite option is to purchase Asda vouchers that I can use to buy the weekly shopping or put fuel in the car.

Another popular option is to sell your Bitcoin for hard cash. There are a number of websites that will take Bitcoin and credit a Paypal account or transfer money to your bank account. There are even traiders that you can meet in person and sell your Bitcoin for cash face to face. Just a word of warning here. Please make sure you do what you can to make sure that the person you deal with is legitimate and honest. Most are, but some are not, so be careful!

How to repay loans with Bitcoin

To repay the loan you will need Bitcoin. If you don’t get paid in Bitcoin, and there are a growing number of internet contracting jobs that do pay in Bitcoin (eg, article writing), then you will need to convert cash back to Bitcoin. To do this you can use the Paypal to Bitcoin site or an agent mentioned above.

Advice for borrowers

To keep your rates low and the likely hood that investors will lend to you, you will need to provide as many details as you are comfortable in giving out. This starts with entering a user name ( does not have to be your real name), and an id image ( does not have to be a picture of you). Doing these will not help your credit score but will help when it comes to increasing lenders confidence in lending to you.

BTCJam will give you a chance to register a Paypal and Ebay account with them. If you do other users will see that you have registered an account and how long that account tchas been opened for. Really you will want to register an account that is regularly used (eBay), and has been opened for 3 years or more ( eBay and Paypal). You can register bank accounts and credit card accounts as well, if you are comfortable with doing this. I have not heard of any problems with doing this, but the risk is yours!

Getting referrals from FaceBook friends ( if you have a registered FaceBook account), or other BTCJam users will help your credit score and loan take up.

I highly recommend starting with small loans and working up. Yes I know that smaller loans have a higher interest rate, but having taken, and paid off a few smaller loans will show that you can be trusted with a larger amount.

Advice for lenders

As a lender you will need to sort through the loan requests and pick out the ones that are most likely to pay back the loan. Remember that these are unsecured loans. If the borrowers do not pay back the loans you will not get your money back, so rule 1: do not lend money that you cannot afford to loose!

Once you have decided how much you can afford to invest have a look through the Loan Listings. You should be looking for borrowers that look like they are serious about the loan they are wanting to take out. Fro example see if they have taken time to add a profile image and change the user name. If a borrower can not be bothered to do these simple things then how serious are they about paying back the loan?

When I look through the loan listings I look at the credit score, the length of time a borrower has had PayPal and eBay accounts, how many other loans they have had on BTCJam, how much the loans where for and if they where paid back on time.

I would advise to stay away from the ‘C’ + ‘D’ loans until you are familiar with BTCJam, and start with very small loans to a wider variety of borrowers. They will not all pay back the loans so spread the risk, specially when you start out!

Conclusion

BTCJam and similar sites are very new and just getting their feet. However digital currencies are creating the possibility of bypassing nation borders to find lending and borrowing opportunities around the world.

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