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.