The Ebay of Loans

Prosper.com links individual lenders to individual borrowers. It strips out some middleman costs but not default risk.
Year-old Prosper functions as an online way station where borrowers and lenders can arrange three-year loans of up to $25,000, at rates three to five percentage points lower than what credit cards charge (see table). Its a-rated borrowers pay an average 8.8% yearly, versus 11.8% for a fixed-rate credit card and 13.8% for a variable-rate card. They could get even better rates, along with tax deductions, if they tapped home equity, but many Prosper borrowers don't own a home.

The San Francisco site provides credit checks of borrowers via Experian and posts their ratings (ranging from AA to HR, for "high risk") with their profiles online. Bids are for interest rates, and the lowest ones win among sometimes dozens of bidders. Borrowers post a requested rate on their Web profiles, mostly in line with their credit rating.

The winning bidders' money, usually in small increments, is packaged into one loan. When lenders browse through the borrower profiles and place bids, it's often for a fraction of the total loan needed, with $50 the minimum. Lenders get the safety of diversity. The profiles allow lenders to see borrowers' debt-to-income ratio, current and past delinquencies. Some borrowers even post monthly phone bills and housing expenses. Borrowers provide photos of themselves, their kids, their pets and--a requirement--what they want to use the money for.

Find out more at Prosper