If you need to borrow money amounting to $25,000 or less, you may want to give online social lending a try. The trouble with banks is that they usually have very stringent eligibility standards. Further, the application process can take a long time and this is inconvenient for people who are in immediate need of funds.

Borrowing from online social lenders is attractive to many people because these outfits usually charge lower interest rates. It also affords lenders higher profits so it's a win-win situation for both parties. However, since it is a fairly new practice, people might be wary of borrowing money through these channels.

To the uninitiated, here is a primer on online social lending.

Better Than Banks?

Online social lending is gaining popularity and is considered by many as a viable alternative to banks. For starters, online social lenders are less restrictive when it comes to the standards they require. The response time of online lending is much quicker compared to that of banks'.

Online lenders also seem more sympathetic to borrowers' situations and are usually more willing to take a risk on a prospect than banks are. These social lending sites usually partner with numerous lending firms, who then distribute their funds across many borrowers as to minimize risks.

Certainly, banks will continue to figure in prominently in the loan industry but online social lending is also starting to gain favorable ground because they are small business and start-up friendly.

Online Lending Sites, Pros and Cons

The most popular sites are:

- Zopa has a quick turnaround time for loan applications and it doesn't charge transaction fees. However, if you have a poor credit rating, your application will be denied. The interest rate you will be charged with will also depend on your credit record.

- The Lending Club, which started out on Facebook takes advantage of social networks to try to work out a loan program for you. As with Zopa, interest rates depend on your credit scores and even if your application is approved, there is no guarantee that the money will be given to you.

- Virgin Money arranges loans between family members. It takes care of properly documenting loan agreements and terms between related parties. It takes anywhere between one to three days to process transactions. If you already have lending prospects, though, you may find the services of Virgin Money unnecessary for you.

- Prosper operates like an auction site - except lenders bid on interest rates. The borrowers indicate the amount they are willing to pay and lenders try to win their business by bidding down on that rate. The drawback is that borrowers aren't guaranteed funding as there may be other people who are willing to pay for higher rates.

Should You or Shouldn't You?

There are many conveniences that an online social lending site can afford you. If you find you are getting nowhere with banks and other credit institutions, this may be the opportunity for you. Make sure to do adequate research on all the available lending sites so you know which services best meet your needs.