People to People Lending

An eBay for loans?  Sounds a little strange, but it is true.  There are two companies, Prosper in America and Zopa in Britain, offering peer-to-peer finance.

The concept on Prosper is really simple and works very much like eBay.  Individuals who need money request it and other people bid on lending to them.  Prosper is simply the facilitator in the transaction.

Borrowers post a listing for a loan stating the loan period the amount needed and the maximum interest rate they are willing to pay.  Lenders review the various postings, find those of interest and place a bid to lend the money.  The lenders decide how much of the total requested amount they want to provide and an interest rate they want to receive.  When the listing ends, bids with the lowest interest rate are combined into the amount the borrower requested.  Borrower payments are deducted from their bank account and deposited into the lender’s account until the loan is repaid.

It allows any individual with a little extra cash to be a lender and receive a better return on investment than traditional CDs or savings accounts.  The major drawback, of course, is the risk.  Just like any investment offering a higher rate of return, there are no guarantees.  If you can’t afford to lose it, don’t invest it.

The Prosper website is very informative and explains the process for borrowers and lenders.  If you need a little funding or have a little to lend, it’s worth checking out.

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