Firevalt Blog - Personal finance and entrepreneurship

Grassroots lending and borrowing

April 5th, 2006

I’m fascinated by a new company called Prosper that recently sprung up. It is an online market for lending and borrowing money — sort of an eBay for financing. For instance, a borrower could post a request for $8,000 at 8% to purchase a new car. A lender might find and accept that offer, in which case the lender’s money goes directly to the borrower. Prosper takes care of running credit checks on the borrowers, intermediating the transfer of money, and skims off 1% as a fee.

As you might expect, the potential for good here is enormous. Since banks charge high interest rates to borrowers and offer very low interest rates to savers, Prosper’s smaller margins could mean real savings (and earnings) for borrowers and lenders.

Of course there is some sense of security in dealing with a bank, but I’ll be interested to see how Prosper does over time and whether or not this becomes more mainstream.

P.S. There is another company like this in the U.K. called Zopa.

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