Buzz
When you have limited money or credit, borrowing can easily lead to a debt trap. However, Lending Circles offers a solution. This new loan method helps individuals build credit securely through 0% interest loans within their local community.
Lending Circles stands apart from options like Lending Club or Kiva. It brings together 6-10 people in-person who agree on a shared loan amount. Participants take turns borrowing and lending, with each transaction reported to credit bureaus, all while maintaining a 0% interest rate.
Founder José Quiñonez shared with NPR that this type of financial activity already occurs in many communities, but Lending Circles helps formalize these loans. He explained:
We essentially recognized this common practice as legitimate financial activity that just needed formal recognition. We achieved this by having participants sign promissory notes, allowing them to join the program, and then we report their activity to credit bureaus. By doing this, we help people build and establish credit scores through the financial activities already happening in their communities. For instance, a group of 10 people—whether they’re neighbors, family, or co-workers—might all agree to contribute $100 each to a shared pot, collecting $1,000. They then decide who will receive that $1,000 first, and they rotate until everyone has had a chance to borrow the money.
While the main focus is on building credit, borrowing from friends or family could be a good way to strengthen your credit score along the way. For more information, check out the links below.
Lending Circles through NPR
Photo courtesy of 401k 2012.
