Prosper.com : Person-to-Person Lending

Banks have a great gig. Most pay you puny interest, and then turn around and lend it to credit card holders at 15-30% APR. A new start-up, Prosper.com, aims to shrink this gap by allowing individuals to lend directly to each other. As a lender, you get to see the credit rating of a potential borrower and well as the reputation of the ‘group’ they are affiliated with, and decide at what rate you would be willing to loan out your money. Read more at the New York Times and BusinessWeek .

This has been done before in the UK, at a site called Zopa.com. Their model is a bit different in that your loan amount is spread across at least 50 borrowers, up to a maximum of ?200 per borrower. Although you can choose to only fund part of a loan at Prosper, I would think a 50-way split would give you much better protection against the total loss of your money. Still, this is very innovative, and I definitely will write more about it later. Thanks to commenter micah for the heads up.

Comments

  1. if I have to lend money to unknown individuals for 7-10%, why don’t I buy corporate bonds?

    i’d like to see the $ lent is backed by the web site, like what paypal does.

  2. hey, stupid question: is pushing to bank B from bank A better than pulling money from bank A to fund bank B?

  3. Wow, neat link. Very cool concept which could be great for lenders and borrowers. I’ll keep an eye on this site although I feel wary lending money to unknown people still.

  4. This is very intreresting. I figure on trying it to borrow just to see.

  5. Interesting indeed. I wonder if there’s any kind of secondary market to sell on you loans?

  6. You should probably start a MyMoneyBlog group. It looks like being a group leader is the easiest way to make money.

    I wanted to test it out with a $100 loan, but given the $25 closing cost, I’d be borrowing at >25%. As a potential lender on Prosper, I’m pretty skeptical when I see “Consolidate credit card loans” and rates over 20%. On the other hand, this looks like a decent 3-year CD

  7. Also, I was wondering about collection agencies. They list AllianceOne, NCI, and Penncro Associates Inc. I did a quick google search, but I don’t have any experience with collection agencies. It seems like an interesting topic for a blog entry.

  8. Well, corporate bonds have their own risks, not only of default but of interest rate exposure. If interest rates rise, their value will go down. I’m not saying Prosper is better, but from what I’ve read the outlook for junk bonds this year is not very good.

    Interesting that Group Leaders get extra incentives. Not sure I want to be promoting more borrowing (not at 0%) though ;)

  9. There are a lot of risks involved with prosper at the moment and Zopa (which originated the idea in England) emailed me to say they will be launching their site later this year and have already begun hiring a pr agency. Should be interesting stuff, with lots more to come…

  10. yeah I think if Zopa comes aboard in the US.. things would be quite interesting..

    the group idea from prosper is pretty neat too, albeit a bit confusing (or maybe I’m stupid).

  11. I have a post that details some of the risks associated with prosper. I’d appreciate any comments or feedback.

    Personally, I like zopa’s approach more due to the fact that they do the diversification for you and take a more proactive approach in getting borrower’s qualified.

  12. I’m new to this blog but couldn’t resist letting you guys know about an alternative way to lend/borrow to people. LoanBack.com is a simply service that you can use to customize a Promissory Note, which is a loan agreement between 2 parties. Our model is predicated on the borrower and lender actually knowing each other, which is the primary difference between us and marketplaces like Prosper and Zopa. Both models have their pros and cons. Check us out here: http://www.LoanBack.com

  13. Guess this is making the rounds… :)

    I joined yesterday and am transferring some money to my account so I can try lending.

    I also started a group called PFBloggers. (Currently waiting to be approved, should be open soon). My thought is to build a community of PF and Debt Reduction bloggers and their visitors. Since we all sort of know each other I think it reduces the risk of lending to each other.

  14. Hi! Megan here from Zopa’s US team – just thought I would follow up with pfadvice’s comment re: Zopa coming to the US: we’re here :) We’ll be opening up the platform to the US market in 2nd Quarter, 2006, so keep your eyes open! The US team is headquartered out of San Francisco.

    Don’t think you’re stupid re: the confusion around Prosper?s group concept ? it?s not necessarily intuitive. However, if past applications relating to social dynamics have truth (and I believe they do!), over the next year or two the concept will start to illustrate its power.

    ~Megan

    [edited by author]

  15. Thanks for the info Megan! I do look forward to Zopa’s version, the UK version seems to spread the risk more widely and easily from what I have read.

  16. how doe’s this work? I could use $1000 right to buy a mini van 1990 model it runs and drives good. So if any one is willing to loan me some money I can pay it back within two years

  17. The government has a good thing going, if you need money buy our book for $40.00 and we,ll give you a list of places that you can get a free grant. So after spending???? money and all the money for the postage, the envelopes, the time to write to 15 places then wait to see if you get a grant. Then a few months later you recieve a letter from the government stating you owe taxes on the money you got.

  18. The Prosper and Zopa systems are excellent… BUT THEY DON’T HAVE IT IN CANADA!!! please somebody start it in Canada! it will become big as soon as it comes here, if people here find that even US people trust it!

  19. SEARCHING FOR SOMEONE TO LEND ME 40K TO PAY OFF UNSECURED CC DEBT AT A LOWER INTEREST RATE AND CONSOLIDATE TO ONE LOAN.

    ROBERT

  20. Since you broke this company onto the scene – I thought you might find it interesting that they’re now publishing their loan results. Check it out here: http://www.prosper.com/public/.....mance.aspx. What’s your take on the data?

  21. Yeah, when will similar services be rolled out in Canada? There’s a good market for this business here. Any way a Canadian could work their way around being a “non-American” to get funded on one of these sites? Someone said something about this site (MyMoneyBlog.com)… I’m new here so I don’t know if it matches up borrowers and lenders too… Hopefully Canadians. Probablly not, but I’ll find out in the next few minutes.

  22. i am a canadian and i am looking for a loan for $15000.00 and will repay in three years, can anyone help or have any suggestions

  23. There is a similar service to be launched in Canada, it is Communitylend.com you can sign up to be notiified when they launch.

  24. PROSPER IS AT A FAILING POINT..THE DELINQUENCY RATE IS VERY HIGH AND IT SEEMS THAT THERE IS NOT EFFORT TO COLLECT ANY MONEY. I DOUBLE IF THEY WILL DO WELL ONCE THEY RETURN. I CETAINLY WOULD NOT PUT ANY MONEY IN TO IT AGAIN

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