Barron of Blog Wife, Kids, and the Pursuit of Happiness

1Mar/063

Prosper: Be a Bank

Prosper.com allows you to bid on borrowing and lending money to other individuals. It's like eBay for investing. Borrowers post a request for money to the site (consolidating debt, for instance). The lenders then bid on this loan. Usually the requested loans are satisfied by many small lenders who all bid small amounts, which are then combined to create the full loan. As the borrower pays back the loan each month lender's accounts are credited with their "share" of the payback.

Technically I'm already "lending money" by having a regular savings account - how do you think we all earn interest each month? The difference is that the bank accepts the risk of borrowers defaulting (and reaps the benefit). With Prosper.com the full risk is on my shoulders, but so is the reward. As long as I spread my loans across many borrowers I should be ok if a few default. Today I get 3-4% return on bank accounts (ING Direct and HSBC), but my return could jump to 7-18% for Prosper.com investments (if a low percentage default).

So I decided to sign up. The process of acquiring an account instilled a bit more confidence in their competancy: they look up my credit score (which is displayed along with all other users), they require a lot of identification information, and they have a list of built-in collection agencies that work on my behalf. Now I just have to wait until my bank account is verified - I'll keep you guys updated on my success/failure.

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