New Investment Opportunity? Person to Person Lending

Prosper.com how it works

When I first read about this in the UK, I knew it was only a matter of time before something like it started here in the US. I stumbled across a new site that has started to do person to person lending in the US the other day. The site is called Prosper.com and it came out of beta testing a couple of days ago.

The concept is quite unique and is based on a person to person lending strategy that takes banks out of the middle. In theory, those who need to borrow money will be able to do so at rates lower than a bank would charge while people lending money can earn rates higher than banks would be willing to pay. A win-win situation for everyone.

Currently the site has a limited number of peopl

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17 Responses to New Investment Opportunity? Person to Person Lending

  1. davis says:

    What do you think about this as a way of building damaged credit?

  2. Bill says:

    My personal risk-tolerance level falls way short of what would be needed to be a lender in this program. You’re right on the money about needing to spread the default risk out. That’s how securitization of mortgages, car loans, etc. works so well.

  3. John says:

    I like the concept, but I think they will have a lot of hurdles to overcome to make the system work. Identity thieves must be drooling over something like this and if they get into the system, nobody will want to lend. I hope that is succeeds as I think banks rip people off too much, but they will have a tough time.

  4. pfadvice says:

    “What do you think about this as a way of building damaged credit?”

    There are fees for borrowing meaning it will cost you a minimum of $25. I suppose that if there are no other alternatives to building credit, it is one choice where you can do so without the hassles of going through the banking approval process. It is a loan and will show up in your credit report so if you pay it off without late payments, it should benefit your credit score.

  5. jeff covey says:

    this isn’t new; circle lending
    has been doing it for six years.

  6. frank says:

    Jeff,
    That’s for family and friends. Prosper is more for perfect strangers.

  7. We (Zopa) think that Prosper is interesting, but as you say, potentially risky for lenders. We think that one of Zopa’s strengths is that it is very safe for lenders – after 12 months, we’ve had zero bad debt – and when we get some, it will have minimal impact on individual lenders due to our 50 way spreading of loan money. There is probably space for Zopa to move slightly towards a higher risk:return model in the Prosper vein, but we don’t want to go as far as they have.

    We’ll get the chance to go head to head soon as we’re planning our US launch at the moment – it’ll be interesting to see who wins!!

  8. Caitlin says:

    Hm. I don’t really see how loaning money to folks so they can buy new clothes and mod their cars will lead them to “prosperity”…just seems like a disconnect between the name of the company and how it’s being used in it’s infancy.

  9. Loi Tran says:

    I think the risks are too high for the lenders.

  10. Jeff says:

    Lenders are working their own little miracles there at Prosper and making a difference! Thanks for the info pfadvice! The risk is no different than placing it in a mutual fund and letting them pillage you with fees and uncontrollable risk exposures. I, personally, would like to be able to select my risk tolerance and earn a predictable rate of return… Prosper might achieve that for me.

    -Jeff

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  14. Andrew says:

    Hi Jeffrey,

    Andrew from Prosper here. There is actually no $1000 minimum for lending on Prosper – there is a misprint in our current lender agreement, but this is a relic of a prior strategy, and is being removed later this week. Just thought I should clear that up. Thanks for the writeup.

  15. James says:

    Greetings!

    Thanks for your detailed info on prosper.com. My fiancee have decided to try it out and will check your website periodically for updates!

    -James

  16. Dan says:

    Greetings, I’ve been using prosper for a few months now and I’m quite pleased with the results. I have over 20 loans out with an avg rate of over 13%. All loans that have existed for a few weeks are current with their payments, so my true ROI at this point is over 13%; great diversification tool with this market that’s on fire and could crash at any moment (esp. internationals). Good luck!

  17. PeerLend says:

    A minor update on this space:

    Prosper has originated over $100mm in loans, with over 500k+ members, and parked about $20mm more in VC not long ago.

    Zopa (who, at the time of this article, operated only in the UK) has launched a US version in partnership with six US credit unions. The model is not quite “P2P”, as lenders are asked to purchase a guaranteed CD (~5%), the purchase proceeds of which Zopa will lend out to borrowers (presumably pocketing the spread).

    LendingClub.com, a completely new player, launched via the FaceBook social networking platform, and has just recently opened to the non-facebook public. Their platform is P2P, but it differs from Prosper’s more laissez faire implementation in that LendingClub underwrites the loans, bucketing them into different grades at different rates – doing away with the typical auction process.

    Two more market entrants are apparently ramping up for launch, as well: GlobeFunder & Loanio. The former is in limited testing in a handful of states, the latter in stealth mode, but supposedly scheduled for launch sometime in January ’08.

    In addition to the US for-profit players, there are also are several non-US focused, more “social finance” oriented, services: Kiva.org has seen continued success (especially in getting its CEO into AmEx commercials!), and eBay has made a recent investment in MicroPlace.com, a social-microlending venture that allows Westerners to invest into individual borrowers in developing nations.

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