With banks hesitating to make loans and many people unemployed and needing to borrow money to survive, there is a relatively new alternative available. Companies are forming and introducing peer to peer loans. In some cases, the loans are being given by relatives or friends. In others, the companies are putting together funds from several groups to support the loans requested. Although this is a new source of loan money, it is rapidly becoming popular and competing with banks for the funds people need to borrow.

Companies such as Virgin Money USA are arranging this type of loan. With family members borrowing from one another, they draw up formal documentation that furnishes a profitable rate to the lender while the borrower is paying less than if he received a loan from a local bank. Although this is a new type of lender, they are rapidly becoming very popular. People who are unemployed or have poor credit are turning to these companies for help in their time of need. Interest rates are based on the borrower’s credit history and current salary, but funds are available and there is a willingness to assist.

Of course there are risks associated with peer lending, but the risks are based on individual criteria. There are also many who are considering lending money from their IRA accounts. Payments and interest are made directly to the IRA. The current loan rate far exceeds the current CD rate, so the possible risk is justified by the increased interest rate.

Most banks are responding to the current housing market problems by changing their policies and offerings. For many years, financial institutions have been pushing home equity loans and lines of credit to homeowners. They encouraged people to borrow against their home equity for any reason whatsoever. Suddenly times have changed and banks are changing with them.

If you have a current line of credit on your home and plan to use it soon, you should first verify with your bank that it still exists. Many banks are freezing credit lines, reducing lending limits and, in some cases, refusing to give credit at all. Between the credit crunch and the real estate market problems, the banks feel these actions are necessary to protect their solvency.

Some other actions being taken today are reducing the availability of personal and small business loans. Credit card interest rates are rising even higher as a result of late payments. In order to receive a home loan, you must have a minimum down payment and a good credit report. To encourage deposits, banks are offering higher interest rates on Certificates of Deposit in the hope of bringing in new depositors

The banking industry is making many changes to how they do business and some of these will lead consumers to a different attitude towards spending money.