Recent headlines have been dominated by the subprime mortgage mess, the ensuing credit crunch, and the ripple effects that continue to be felt by financial institutions worldwide.
But loans don’t have to come from banks. San Francisco-based Prosper makes it easy for people like you and me to borrow from, and loan to, other individuals. I love the idea of circumventing the banking system (especially since financial institutions’ investments sometimes conflict with people’s ethics) and instead engaging in a community-based model of borrowing and lending.
Here’s how it works. Say I need $20,000 to make a documentary film about the conscious-consumerism craze that’s sweeping the nation, and my bank wants to charge me a 20% interest rate for the loan. I think I can do better. Once I join Prosper (for free), I can request a three-year, unsecured loan of up to $25,000 by posting a
listing that states how much I want to borrow and the maximum
interest rate I’m willing to pay—say, 15%.
Potential lenders search Prosper’s listings and bid on requests that appeal to them (based on the maximum rate, the borrower’s credit history and debt profile, and other factors). Each bid states the amount to be lent (it doesn’t have to be the whole chunk of change) and the minimum interest rate the lender is willing to accept.
Say one person will fork over $10,000 at 15%, one lender will part with $7,000 at 13.5%, and another person will let me borrow $3,000 at 10%. Bingo: Prosper combines the three offers into one loan for me and facilitates its payment and collection. My filmmaking career is launched! (See the FAQ for details about how Prosper handles identity verification, missed payments, etc.)
Another cool feature is that lenders can form groups on Prosper that focus on specific types of borrowers—college grads under 30, entrepreneurs, active-duty members of the military, Wisconsinites... the list goes on.
Power to the people!