Can you lend me a dollar? – Peer-to-Peer Consumer Lending

Dec 5, 2006 by

Banks are well-known for charging insane interest rates for consumer loans. Yet, when we lend money to banks (via CDs or savings accounts), we would be lucky to get 6% interest in return. While CDs are obviously less risky than consumer loans, they also have far less return. Americans can now enter the consumer loan market through peer-to-peer lending services, such as Prosper publishes a list of loan default rates, by credit rating of borrower, as well as a table of the average interest rates at which borrowers of various credit ratings have borrowed.

Consumer loans are obviously far more risky than government bonds or commercial paper. hires a collection agency to collect loans in default on behalf of lenders. In order to reduce the risk of lending, encourages borrowers to have their loans funded by multiple lenders, and lets a lender fund as little as $50 to an individual borrower’s loan request. Lenders bid on borrowers by offering to give them an interest rate through an auction process.

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  1. Ryan sounds like a good way to get a decent return from lending money but I think that is more of a conservative way so earn money. The best way to get a high rate of return is to be proactive about it, IMHO.
    I think, ideally, one should be in the position to want to accept loans in order to increase potential gains. Why do you think these companies borrow money and give a return? Because they are using YOUR money to earn THEMSELVES money. So, why not be on the winning side of this bargain if you have the ability to outperform a CD, or in my case, a lousy .5% return from my savings account.

    Just my two cents :).

  2. Jacob

    It does seem like it could be a good idea for people with money to lend, but an even better opportunity for people or start-ups needing money. It would certainly seem easier to acquire a loan from this site than to apply to a bank. Even though they do have a collection agency to somewhat lessen the risk of lending, but I personally think that there are better investments with similar or better returns. Either way, it would definately be a better solution than leaving your money in a savings account, where banks make a fortune while you make next to nothing.

  3. I just recently found and I think it is a great idea! I have become a lender through their program and am looking forward to reaping the rewards of online lending. It is an easy, low risk, way to make money as long as you choose you loans wisely, lend in small increments with a variety of borrowers and just sit back and relax as you get roughly 6-20% or more return on your investment depending on each loan’s specific APR. I think it is a no brainer really. An excellent addition to online independence!

  4. Nicolas Duarte

    Interesting, but it seems as if it is mainly for people who want to spend a lot of time working on this sort of thing, not for the ever growing couch banker/invester.

  5. With regard to Jacob’s comment, this process (called microbanking) has been used for some time in supporting very small start-ups in Africa, where there is essentially no organized process for making such loans. Payback there is very nearly 100%!

  6. I looked into once. However, the maximum allowable interest rate in my state, Pennsylvania, was far below the going rate for even the most qualified lenders.

    Fortunately, most other states did not seem to regulate interest rates.

  7. Chris is a very interesting mirolending / peer-to-peer concept. I like the community aspect and that normal people can get or give assitance to others just like them. The $50 minimum allows just about anyone to ‘become the bank’. I did a little shifting through prosper’s public loan data and found that the avg loan value is right around $50 and the avg. lender has approx. 4-6 loans.

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