The Bitcoin powered peer-to-peer lending site BTCjam has added the ability for borrowers to refinance their loans, if they are having trouble making payments.
Bitcoin doesn’t have credit in the same way the fiat market does. Credit, regardless of how you feel about our current financial policies as a nation, is a very important thing for an economy. Loans can create opportunity and opportunity can create value. This has been the case for nearly all of recorded history, well before we moved away from backed currencies and just started adding zeros to the end of bank ledgers.
Peer-to-peer lending sites enable us to circumvent the funny business that is involved in bank loans and let people on both sides reap as much benefit as possible. BTCjam uses Bitcoin to not only remove the friction involved in those loans, but circumvent that pesky fiat system entirely (for certain loans).
Still, there are certain advantages of going to a bank for a loan. For starters, they can help struggling borrowers refinance. Granted, banks are always looking to make money and will certainly turn misfortune into their windfall, but it is still nice to have the option, if the bank is willing.
BTCjam refinancing gives borrowers an option if they can’t pay, but as they had to with their first loan, they will need to find investors that believe in them. This means finding new investors eager to invest in a borrower who admits to having trouble repaying a previous loan.
The first few refinancing attempts are already popping up and funding looks unlikely for most. Two refinancing attempts I found haven’t paid any Bitcoin on their original loan, another one comes from a user who claims he lost his shirt in the Paycoin debacle.
If refinancing attempt is successful, the funds will immediately be sent to the lenders of the original loan. This is clearly designed to help both borrowers and lenders but one could imagine a scenario where a borrower could phantom invest in themselves, then refinance their loan and receive a portion of the new investment as well. The borrower also has the option of asking for more than the original loan amount, and anything raised that exceeds the original loan amount will be lended out to the borrower.
But that is the natural order of things. BTCjam makes as many things as possible immediately clear and savvy investors will avoid shady borrowers. Most BTCjam loans with users of a C credit rating or higher in BTCjam’s propitiatory credit system, end up repaying.
This is another example of the cryptocurrency world successfully eliminating the need for the traditional finance sector. BTCjam already proved the viability of Bitcoin based peer-to-peer lending, the addition of refinancing just makes the platform that much more versatile. It remains to be seen how often it will be used by legit borrowers, but there doesn’t seem to be any harm in experimenting.