No Interest Lending Circles Making A Comeback In California
LOS ANGELES (CBSLA.com) — Need a financial pick-me-up without going to the bank?
The centuries-old "lending circle" is making a comeback.
In Shweta Koohli's case, 12 people chip in a set amount each month. Then each month, one member of the circle gets the whole pot at no interest.
Koohli used the $100 contributions from her pot to make a payment on a car.
"I had the cash with me without going to a bank, [without] using a credit card," Koohli said, noting the idea was a familiar one. Lending circles have been around for centuries in her homeland of India and countries around the world.
And recently, California became the first state in the nation to make it legal for non-profits to offer small, no-interest, no-fee loans through lending circles.
Christopher Thornberg, a Bel Air financial analyst and founding partner of Beacon Economics, says if you have bad credit, lending circles can help to repair it because these non-profits can report payments to credit bureaus.
"Here you have an opportunity to work within a social group by which to build that credit," he said. "That can ultimately get you down the road to having access to credit in a greater way, which we know makes life a lot easier, whether to buy a home or a car."
In Koohli's case, her credit score soared from non-existent to the high 700s, getting her closer to her next goal.
"Eventually if I can, I want to save for a condo," she said.
Thornberg warns there are some serious pitfalls that can come with involvement in lending circles as well, namely risking friendships if payments are not made.
