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Loan marketplace is 'eBay for money'

Web Posted: 07/06/2006 12:00 AM CDT

Roy Bragg

Express-News National Writer

Somewhere in America, a stranger wants to loan you money.

This far-fetched notion is the essence of Prosper.com, a 4-month-old Web site that combines the online auctioning of eBay, the social networking of MySpace and the mission of online lenders such as E-Loan and Lending Tree.

With Prosper, borrowers go through a financial background check, get a credit rating and then make their pitch for money.

Lenders sign up and pick the loans they want to bankroll.

"Fundamentally," says Chris Larsen, Prosper's chief executive officer and co-founder, "this is about combining community and commerce. And it's bringing capitalism to the masses. Capitalism works better when more people get access to it."

Larsen co-founded E-Loan, a major online lender, but cashed out in November.

He and partners saw a need for people who can't get a loan from traditional lenders and felt there was a viable, for-profit business model in it.

"The ultimate model, we thought, was an eBay for money," Larsen said, "where small borrowers and lenders could have access."

Borrowers are assigned a credit rating based on their credit history and submit their loan request.

Lenders invest money in increments ranging from $50 to $25,000, picking borrowers they feel are worth the risk.

The open market decides if a loan gets funded in an eight-day window. If the loan doesn't net enough borrowers, the request expires. The borrower can re-apply.

Typically, borrowers inch up the interest rate or shave the requested amount to attract lenders.

Prosper charges borrowers 1 percent and lenders a 0.5 percent annual fee for servicing the loan.

The several thousand pitches on Prosper's Web site run the gamut.

A single mom wants to borrow $2,500 at 28 percent to pay off bills and rent a house so her son can have a back yard to play in. A small businessman wants $5,950 at 28.75 percent to buy a used cargo van for his wireless phone business. A Long Island schoolteacher wants $3,000 at 14 percent for a vacation for her and her children.

A 43-year-old San Antonio engineer, who asked not to be identified because he was discussing his personal finances, became a Prosper lender because the idea intrigued him.

He has been handling his portfolio via online brokers for 15 years.

"I thought it was interesting that you could give loans to people who needed it," the engineer said. "And I saw other Web sites talking about lending for social purposes."

The stories, the engineer said, make a big difference. Half his loans go to hard luck stories. Some are riskier than others.

High-risk loans come with higher interest rates, he said, and offer the chance for a bigger return.

Some lenders invest thousands of dollars at a time. The engineer is taking it slowly, loaning money only $50 at a time. So far, he's got 37 loans out.

"I don't think this would've worked 10 years ago," said Bruce Weinberg, a professor of e-commerce and marketing at Bentley College in Waltham, Mass.

Now, consumers are more comfortable with online transactions and online interaction.

A research firm says half of Web-savvy households now pay bills online. A banking publication estimated that online mortgages totaled more than $100 billion in 2005.

Prosper.com's future depends on the ad hoc partnerships being made between lenders and borrowers, Larsen says.

The site offers neither price nor product. Instead, it offers an environment.

"We're not pushing a product to the market," he said. "We're offering a platform. People are making it work."

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Hmm. Very cool idea. The more wary me thinks this could be considered kinda predatory, but at the same time, if no one else will give you the loans you need... Hrm.

Edit: Nevermind. I've had a look around and I like it a lot! Does anyone here have a group?

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  • 2 weeks later...

no this prosper dot com is ok.... i signed up to lend money...

the problem is that its simple interest.... i thought i would be making 28 percent... but what happens is that people borrow 1000 dollars for 3 years

and pay back 1280... So if i lend them 50 bucks i only get about 6 percent per year....

a real 28 percent per annum would be 1884 dollars....

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