Prosper.com

By Michael Santo
Contributing Writer, RealTechNews

Want to lend money to a perfect stranger? Here’s the way it works at Prosper.com: someone submits a request for a loan with the amount he needs and the maximum interest rate he will pay. Others “bid” on the loan, submitting how much they will loan and what rate they want. They don’t have to bid for the entire loan, of course. Then the bids with the lowest rates are combined to form the full loan. Sounds kind of like eBay, right?

The idea is to gain “reputation” by joining groups on Prosper, like say the PTA or … maybe something like Mensa. Of course, your Experian credit rating is another criteria by which lenders can choose to lend to you or not. Naturally, you have to worry about default, etc. and that’s all covered in Prosper’s Help sections.

Lenders essentially deposit their money with Prosper–which holds it in an interest-bearing account with Wells Fargo–and either review the loan requests individually or fill out a form permitting Prosper to allocate money to borrowers who meet certain criteria.

Chief among those criteria is the borrower’s rating from the credit reporting bureau Experian, but borrowers can also join or create groups with defined interests or characteristics that, they hope, will make them more attractive to some lenders. Source: The New York Times via News.com

Note: The sentence excerpted from the original article which states that the pass-through account with Wells Fargo earns interest is incorrect. The Prosper FAQ clearly states you do not earn interest.

We Say: The first sentence of this post tends to reveal my initial feelings toward this. But those were my initial feelings. The more I think about this, since the (see the bitmap above) you can see the debt / earnings ratio, the credit rating, the person’s story … this might work. On the other hand, the first time there is a scam at Prosper (like you see sometimes as eBay) there will be big headlines. However, I might even try this myself, with a very small cash stake.