I’ve stumbled upon one of the most interesting sites recently. I read about this website in some article and thought I’d check it out. The site is www.prosper.com.

The website more or less cuts out the middle man in the lending industry, namely banks. Prosper.com naturally gets its cut, but it’s comparatively minimal. Put simply here’s how it works.

Lenders are those who want to earn a percentage yield, or interest, on their money. Borrowers are those who need/want (subject for another post) a sum of money to accomplish some goal. These two groups are brought together and the fun starts.

A borrower places an ad basically with the amount he/she wants and the maximum interest rate they’re willing to pay. The lenders then bid an amount they’re willing to lend/risk at the minimum interest rate they’re willing to take. When the borrowers listing is over, the lenders with the lowest bid interest rates are the ones selected to actually lend the money. The borrower then makes payments over the course of 3 years. There’s a little more to it than this, but it’s the basic gist of things. You can learn more in the help section of the site at www.prosper.com/public/help.

Now, this isn’t exactly the place that I’d stash my emergency fund, given the risk/reward scenario. I do, however, applaud the opportunity to decide for myself to whom and at what rate I’d like to lend my money. At a typical bank, you deposit your money, and they have loan officers that lend out your money for you. Here you have the opportunity to earn more on your money because you get to keep what the banks call “the spread”.

So, take this for what you will, but you’ll at least have to admit that the concept is quite ingenious if not disappointingly intuitive (that’s short for “why didn’t I think of that?”).

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