Are no collateral loans possible?

[Coinster]

Hi,

We're pleased to introduce a new lending platform at: https://trustedcointrades.com/lending

Our lending section includes collateral and no collateral loans and we're seeking feedback. Can no collateral loans be done safely? We believe they can as our Gold and Silver members have their identity (or similar reputation) verified. Is there anything else we might do?

We feel no collateral loans should work somehow and be a benefit. Loans in a forum setting won't work well, but there should be ways to increase safety. Consider banks charge a $35+ service fee for account overdrafts. This is a great example of where a small short term loan, say around $50, could save someone a large fee and be worth it even at high interest. What do you think?

[Vod]

Hi,

We're pleased to introduce a new lending platform at: https://trustedcointrades.com/lending

Our lending section includes collateral and no collateral loans and we're seeking feedback. Can no collateral loans be done safely? We believe they can as our Gold and Silver members have their identity (or similar reputation) verified. Is there anything else we might do?

We feel no collateral loans should work somehow and be a benefit. Loans in a forum setting won't work well, but there should be ways to increase safety. Consider banks charge a $35+ service fee for account overdrafts. This is a great example of where a small short term loan, say around $50, could save someone a large fee and be worth it even at high interest. What do you think?

So you are verifying identity.

That will only help you if you are registered, legal and ready to sue.  People will take advantage of you until you prove you are all three.

[Coinster]

So you are verifying identity.

That will only help you if you are registered, legal and ready to sue.  People will take advantage of you until you prove you are all three.

Thanks for the input! Hmm, suing for loan default isn't what we had in mind.  

I don't think that's desirable for either loan providers or recipients. I'm thinking more along the lines of incentive not to default. For example, in the real (not crypto) world people don't fear getting sued for loan default. They're more afraid of debt collection activities, bad credit ratings etc. Long ago I worked for a company that had a simple policy of sending out reminders of payment due, but the key was using attention getting colors, like red or neon labels with bold lettering saying things like "PAYMENT OVERDUE" "LATE REMINDER" etc. The idea was people don't like others believing they're not on the up and up, even if it's just the mailman.

The trick is making it more attractive to repay the loan than to default. I don't think everyone taking out a loan has intention to default. Instead unforeseen circumstances might come up and things get out of hand.

[ThatRandom8543]

So you are verifying identity.

That will only help you if you are registered, legal and ready to sue.  People will take advantage of you until you prove you are all three.

Thanks for the input! Hmm, suing for loan default isn't what we had in mind.  

I don't think that's desirable for either loan providers or recipients. I'm thinking more along the lines of incentive not to default. For example, in the real (not crypto) world people don't fear getting sued for loan default. They're more afraid of debt collection activities, bad credit ratings etc. Long ago I worked for a company that had a simple policy of sending out reminders of payment due, but the key was using attention getting colors, like red or neon labels with bold lettering saying things like "PAYMENT OVERDUE" "LATE REMINDER" etc. The idea was people don't like others believing they're not on the up and up, even if it's just the mailman.

The trick is making it more attractive to repay the loan than to default. I don't think everyone taking out a loan has intention to default. Instead unforeseen circumstances might come up and things get out of hand.

All those things can lead to getting sued. Some will sue as a way to pressure the debtor into paying, others will do it because that is their last option. Some have already had bad credit and can still get loans through alternative methods, which could lead to lawsuits. So yes, in the real world, people will be afraid of being sued, which such judgement can impact their credit ratings even more. Little example of the "methods" you mentioned: BTCJam (now closed) would send payment reminders to those who are late making payments. That didnt work. I've watched nearly 100btc go down the drain. On top of that, people can easily falsify information which in the end will cost you a whole lot.

I would advise that you rethink what you are doing if you are being serious because I can promise you, it will cost you alot down the road.

[hiker]

No collateral - no loan. Everything else ruins business.

[CoderTerganteng]

even bank need collateral if u want take a loan

[Coinster]

I would advise that you rethink what you are doing if you are being serious because I can promise you, it will cost you alot down the road.

If it won't work then, yes, we will remove the no collateral section. However, there may be a way to make it work. I'm not talking about huge amounts. Of course collateral is needed for thousands of dollars. For example, when a person takes out a loan to buy a car, the car itself serves as collateral, since it's repossessed if payments stop. But for much smaller amounts, say always under $1,000, perhaps there is a way to have people prove trustworthiness.

So, for example, I'm thinking a credit score which people work to build. Say a user takes out a loan for just $5. There very little risk of default, right? Once that is paid back then maybe a higher loan of $10 is approved. A user then works to build up their credit by proving a track record of repayment, which allows them to receive higher amounts. I feel many users after working hard to build up a credit rating would rather repay than risk losing it. Sure there will be some defaults, but it shouldn't be the majority.

[jackg]

Thanks for the input! Hmm, suing for loan default isn't what we had in mind.  

Suine is a way to add pressure to the lending scenario. If someone thinks they're under contract and have more to lose than repaying (also, interest gets added to any loan amount when you go to court, along with legal fees so people would like to avoid that if they can).

I don't think that's desirable for either loan providers or recipients. I'm thinking more along the lines of incentive not to default. For example, in the real (not crypto) world people don't fear getting sued for loan default. They're more afraid of debt collection activities, bad credit ratings etc. Long ago I worked for a company that had a simple policy of sending out reminders of payment due, but the key was using attention getting colors, like red or neon labels with bold lettering saying things like "PAYMENT OVERDUE" "LATE REMINDER" etc. The idea was people don't like others believing they're not on the up and up, even if it's just the mailman.

I'm not sure using bold/large and colourful print is too helpful.
Maybe if it comes from a place high up or, what works even better, sending people round to commercial premises that the owner owns (with a particularly well labelled van) to identify that the owner of the company has got debts they're unable to pay (people are less likely to buy from the company for as long as the debt collectors are there, thus, adds pressure in a similar way to suing).

The trick is making it more attractive to repay the loan than to default. I don't think everyone taking out a loan has intention to default. Instead unforeseen circumstances might come up and things get out of hand.

Some will take out loans to default as (free money) if you don't have any way of knowing who they are.
Sure, you can check their identity, but they can lie about it. E.G. If I give a loan on a lending platform, I get an arbitration document with the persons' address and identity on it. With that, I could technically use the details of that to act as ID for other things (I obviously won't as that's fraud), but the option is there for someone to abuse if they so wish.

I would advise that you rethink what you are doing if you are being serious because I can promise you, it will cost you alot down the road.

If it won't work then, yes, we will remove the no collateral section. However, there may be a way to make it work. I'm not talking about huge amounts. Of course collateral is needed for thousands of dollars. For example, when a person takes out a loan to buy a car, the car itself serves as collateral, since it's repossessed if payments stop. But for much smaller amounts, say always under $1,000, perhaps there is a way to have people prove trustworthiness.

So, for example, I'm thinking a credit score which people work to build. Say a user takes out a loan for just $5. There very little risk of default, right? Once that is paid back then maybe a higher loan of $10 is approved. A user then works to build up their credit by proving a track record of repayment, which allows them to receive higher amounts. I feel many users after working hard to build up a credit rating would rather repay than risk losing it. Sure there will be some defaults, but it shouldn't be the majority.

There's also a difference between people in different countries. $5 in one country might be a weeks worth of food (or even more) in some really poor country.
$5 in my country, would do about a quarter of a meal (if that).
Alos, people might try working for getting a better credit score on your site just to try to get more.

Unless you say, someone can lend $5, the next time they come to your site, they can lend their original $5+the interest the paid once returning the $5.

[Coinster]

Suine is a way to add pressure to the lending scenario.

That's a very good point. I was thinking more about the hassle the lender has to go through. However, for larger amounts you're probably right that going to court (or at least the threat) could be worth it...

sending people round to commercial premises that the owner owns (with a particularly well labelled van) to identify that the owner of the company has got debts

LOL Yeah, I think you're right there. That might be even more pressure than suing! It's one thing to lose a court case and get it over with. It's quite another to have an entire business reputation damaged.

With that, I could technically use the details of that to act as ID for other things (I obviously won't as that's fraud), but the option is there for someone to abuse if they so wish.

Yes, we're aware of the possibility of identity theft and/or fraudulent documents. We have 3 trust levels: Bronze, Silver, and Gold. The Bronze level basically means untrusted. Our Silver level means we've done a basic ID check, which could be open to fraud as you say, so no collateral amounts should remain low like under $50-100. Our Gold level means we've done deeper checking into the user's background which is not easy to fake, but amounts should still remain low. For loan amounts of hundreds or thousands of dollars it should be certain the user is who they say they are, which is possible to verify, but takes more resources.

There's also a difference between people in different countries. $5 in one country might be a weeks worth of food (or even more) in some really poor country.

That's a very good point. In Venezuela right now $5 is about the average monthly salary a person has. However, I think that's all the more reason to try protecting one's credit rating. Say a Venezuelan built up their credit to be trusted with $30. For lenders in the US that's no big deal, but that's 6 months of income for them! They might be able to get a business idea started. It can't be that expensive to open a shop if most people earn $5 per month.

Alos, people might try working for getting a better credit score on your site just to try to get more.

That's exactly what I want to happen! That's where the incentive to repay comes from.

Unless you say, someone can lend $5, the next time they come to your site, they can lend their original $5+the interest the paid once returning the $5.

It would be tricky to get the incentives right, but there may be a way to make it work. Thanks for the great input!

[jackg]

With that, I could technically use the details of that to act as ID for other things (I obviously won't as that's fraud), but the option is there for someone to abuse if they so wish.

Yes, we're aware of the possibility of identity theft and/or fraudulent documents. We have 3 trust levels: Bronze, Silver, and Gold. The Bronze level basically means untrusted. Our Silver level means we've done a basic ID check, which could be open to fraud as you say, so no collateral amounts should remain low like under $50-100. Our Gold level means we've done deeper checking into the user's background which is not easy to fake, but amounts should still remain low. For loan amounts of hundreds or thousands of dollars it should be certain the user is who they say they are, which is possible to verify, but takes more resources.

Looking at this. I'd say a good thing to do is offer (for a gold status) two options:
1. The borrower must provide collateral to the value of 120% of the loan (obviously)
2. A company name (lending to a company is great as you don't run into any licensing issues). If the company can't pay, you can always pressure the director by saying that they should be able to pay the debt - as they or the ceo can usually be held liable for the entire or part of the debt (in a lot of countries) so it's quite a helpful trick.

There's also a difference between people in different countries. $5 in one country might be a weeks worth of food (or even more) in some really poor country.

That's a very good point. In Venezuela right now $5 is about the average monthly salary a person has. However, I think that's all the more reason to try protecting one's credit rating. Say a Venezuelan built up their credit to be trusted with $30. For lenders in the US that's no big deal, but that's 6 months of income for them! They might be able to get a business idea started. It can't be that expensive to open a shop if most people earn $5 per month.

Alos, people might try working for getting a better credit score on your site just to try to get more.

That's exactly what I want to happen! That's where the incentive to repay comes from.

Unless you say, someone can lend $5, the next time they come to your site, they can lend their original $5+the interest the paid once returning the $5.

It would be tricky to get the incentives right, but there may be a way to make it work. Thanks for the great input!

For this bit, my suggestion was probably something that would be a bit slow.
Maybe offering to double the original amount up to about $100 and then change to adding half each time might work quite well (and then increasing by a decreasing amount each time).

[fenican]

If someone has good credit and is willing to have their identity verified, there's no reason to do a crypto loan. They can get regular bank loans. Hence, what niche are you proposing to fill that banks don't already handle?

[DaddyMonsi]

Hi,

We're pleased to introduce a new lending platform at: https://trustedcointrades.com/lending

Our lending section includes collateral and no collateral loans and we're seeking feedback. Can no collateral loans be done safely? We believe they can as our Gold and Silver members have their identity (or similar reputation) verified. Is there anything else we might do?

We feel no collateral loans should work somehow and be a benefit. Loans in a forum setting won't work well, but there should be ways to increase safety. Consider banks charge a $35+ service fee for account overdrafts. This is a great example of where a small short term loan, say around $50, could save someone a large fee and be worth it even at high interest. What do you think?

No collateral loans works if you and the borrower lives in the same country, that way you can hire someone to look for the borrower in-case the borrower defaults on the loan. Whether your business plan does not involve legal actions to those who defaults, you have to put that into consideration or else borrowers will take advantage of your business since they have nothing to lose.

Here in my country, there are companies who offers no collateral loans as long as you have a valid Facebook account that was created a long time ago with active friends and relatives and you are employed. But there's a catch, the interest rate is so high that when computed for the total amount to be paid, capital almost doubled.

[Coinster]

Thanks for the great input everyone! After much thought I have an idea which may work. The key is reputation. A borrower must have something to lose if they default. Many in crypto have built up profiles with good reputation, such as Legendary members on BitcoinTalk, or 100% Feedback with 1K+ trades on LocalBitcoins.com. If we tie in a member's reputation to a loan that could provide incentive to not default.

For example, a member's profile can have a line like this:

Verified Profiles: BitcoinTalk(DaddyUser - Legendary), LocalBitcoins(DaddyTrader - 100% FB)

In this way a potential lender can see the person has an established track record and make a small loan of say $50-100, without collateral. If the person defaults that is attached to their reputation on our site for minimum 4 years. We'll also have a public search where usernames can be searched and checked for any default.

I think for small amounts it's much better to repay than ruin an established reputation, similar to credit history.

If someone has good credit and is willing to have their identity verified, there's no reason to do a crypto loan. They can get regular bank loans. Hence, what niche are you proposing to fill that banks don't already handle?

Banks don't generally loan out small quick loans. Think of it as the difference between going to a supermarket or a convenience store. People use both. Also, a person with bad credit isn't automatically guaranteed to default. It depends on the circumstances. For example, the profession considered least likely to default on loans is a school teacher (they remain in a stable job for decades). Imagine a school teacher has a medical emergency forcing them to declare bankruptcy or otherwise default. Perhaps they're a young teacher just starting out with no credit history. Banks don't take time to ask about a person's details. They make a black/white decision based on credit rating. We want a platform where peers can advertise to other peers who can take time to consider finer points that may make individual loans make sense.

Here in my country, there are companies who offers no collateral loans as long as you have a valid Facebook account that was created a long time ago with active friends and relatives and you are employed. But there's a catch, the interest rate is so high that when computed for the total amount to be paid, capital almost doubled.

Yes, there is a certain value that exists with a person's online profile which can be used as a basis for judgment.