Online services like Prosper.com and Zopa have been making quite an impact on how people do financial transactions -- lending in particular. Over $100 million of lending transactions have passed through Prosper.com since it launched in February of 2006 and the US website has partnered with SBI Holdings to expand into Japan. On the other hand, peer-to-peer lending website Zopa has been operating in Britain since early 2005 and began offering its service in the United States this month.
Prosper, Zopa, and other similar services feature pictures of aspiring borrowers, who explain why they want the cash.
Prosper, created by E-Loan founder Chris Larsen, lets lenders spread money among borrowers whose individual loans end up financed by an array of people.
Prosper charges borrowers a one to two percent closing fee and lenders pay the website from zero to one percent of the outstanding principal annually to maintain accounts.
If a Prosper borrower fails to pay back a loan the default is reported to credit agencies and eventually sold to collection agencies. The default rate on Prosper loans is a meager three percent.
Prosper lenders are shying away from debt in the subprime category and the number of borrowers considered prime is climbing, says company spokeswoman Tiffany Fox.
"As credit is becoming tighter in the broader markets for even people with good credit, Prosper is becoming an attractive alternative," Fox told AFP.
"There is definitely the creation of a new asset class for lenders. Eventually, people will have real estate, bond, stock and their people-to-people portfolio."
"There is something about knowing what your money is used for. Something magical happens in that person-to-person connection."
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