If you don’t have a lot of money and you don’t have a lot of credit, it’s easy to fall into a debt trap if you need to borrow money. There are alternatives out there, and Lending Circles is a new loan option that allows people to build credit safely through 0% interest loans in their community.


Lending Circles works a little differently than options like Lending Club or Kiva. It organizes 6-10 people, in-person, who decide on a group amount for a loan. Each person takes turns borrowing and lending and the activity is reported to the credit bureaus while interest remains at zero percent.


In an interview with NPR, Founder José Quiñonez explained this type of activity already often happens in communities, but Lending Circles offers a way to legitimize these loans. He said:

What we did was basically recognize that activity as bonafide financial activity that just needed to be formalized. And the way we did that was we asked people to sign promissory notes so that they can then participate in the program, and then we then report that activity to the credit bureau. So that’s how we’re helping people build and establish their credit scores by reporting on this activity that’s already taking place in the community...You may have 10 people, and informally it could be your neighbors, could be your, you know, relatives, could be your co-workers. And then they’ll all agree to, say, put in a hundred dollars into the pot, so you then collect that thousand dollars. And then they agree on who takes that thousand dollars first, and they do that in rotation until everybody has a chance in getting that thousand dollars.

The idea seems to be more about building credit, but if you’re borrowing money from friends or family, it seems like a decent option to help boost your credit in the process. For more detail, head to the links below.

Lending Circles via NPR

Photo by 401k 2012.