Micro-Lending On the Web

Came across an interesting article in this weekend's Wall Street Journal about lenders and borrowers hooking up over the web. The article's author has been using a web platform called Prosper.com to build a portfolio of loans to a variety of people, including money for a grad student's foreign travel, funds to cover a woman's adoption costs, and cash for home repairs - all at varying rates of interest.

Apparently there are several sites thorugh which potential borrowers and lenders can meet one another "virtually" and arrange a loan; however, Prosper is represented as being the most popular. For those needing a small loan, such sites can represent an alternative to credit cards or credit unions.

Prosper provides an "eBay like forum" where lenders can evaluate hundreds of prospective borrowers, each seeking a loan of $1,000 up to $25,000, repayable over three years. The borrower indicates the maximum interest rate he/she is willing to pay; Prosper.com provides a credit rating, along with information on homeownership, credit history, and debt-to-income ratio; and the loan is put up for bid at the highest interest rate the borrower is willing to pay. Lenders can bid in increments as small as $50 (i.e., loans are usually syndicated amongst a number of lenders) and can set the interest rate at which they are willing to lend. The ultimate return on the loan is equal to the interest rate, less modest fees charged by Prosper.com, adjusted for ultimate default rate.

For people interested in the world of micro-lending, looking for a new investment vehicle, or needing extra cash themselves or their small business, prosper.com looks like a site worth checking out.