• NY Times , Monday, February 13, 2006 10:15 AM

A new Web site lets users lend money to and borrow money from other people at what it claims are better interest rates than those available at banks, reportedly averting some of the risk inherent in typical person-to-person loans. The New York Times calls Internet start-up Prosper.com a "mixed brew of eBay, Friendster and the local bank." The idea works like this: prospective borrowers register with the site and let the company review their credit history. They then post a loan request of up to $25,000 along with a limit for the amount of interest they're willing to pay. Loans cannot be secured by collateral and are paid off over three years at a fixed rate. Lenders can review loan requests individually or fill out a form permitting Prosper to allocate money for them based on certain criteria, including the borrower's credit rating. Loan requests are posted with group affiliations like antique car aficionados or Cal Berkeley students to help organize people with a similar cause, along with a description of who they are and why they need the money. Borrowers then wait for a maximum of two weeks for lenders to bid in ever-lower interest increments for the right to issue the loan. To minimize lender risk, Prosper lets them finance just a part of a given loan, say $100 at 6.5 interest to a borrower with excellent credit. After an agreement is made, Prosper transfers money into the borrower's account and sets up a monthly repayment plan that withdraws money from the borrower's checking account. If a borrower defaults, Prosper simply hires a collection company on behalf of the lender and alerts credit bureaus. Prosper earns 1 percent of each loan amount to be paid for by the borrower as well as 0.5 percent of the loan's balance each year from lenders.

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