Gary, not only is it "fast, easy and free" to sign-up Prosper is paying people $25 to sign up if you use a referral link. Actually, sometimes it's not that fast to sign up. You have to verify your identity to keep fraud down.

Lending Club is another similar site.

I'm a small-time lender on both sites and enjoy blogging about them both. You can check out more info and tips on my site:

http://prosperlending.blogspot.com

I have been a Prosper lender for nearly a year now and I love it. The model makes a lot of sense to me and the system seems to work very well from the perspective of a lender. My account has an average interest rate of over 16% at this point.

I think it's a great way to diversify investments a bit.

Back in August, 2007 I wrote a short overview article about Prosper on my blog (http://www.blakeschwendiman.com/blook/2007/08/long_tail_of_lending.html).

I agree, peer lending sites really are an enabling technology that will revolutionize the way some people borrow money.

You can look at the site from two different perspectives, a source for capital or a vehichle for investment.

Not only can consumers use P2P sites to consolidate their credit card debt or get a small business loan, if investors use the right strategies they can safely earn high single digit or low double digit returns on money they lend there.

Here is why lending money on Prosper.com makes little sense...

If you average 10% amoritized interest rate on prosper with a 0% default rate, with the typical 1% Prosper.com lender fee, it is the equivalent of earning only 4.6% on an annual return basis.

Seeing as there is NO published data on Propser.com borrower defaults, plus the fact it takes about 32 months to recover the original lended amount (based on info above), and reliable bank CDs are going at rates around 4.3%...
http://cdrates.bankaholic.com/

If your deafult rate goes to just 5%, your annualized return quickly drops 1.3% below CD rates to just over 3%. At a 10% default rate, the return goes to a paltry 1.5%. At 15% defaults, you begin to lose money.

With a bank CD you can recover your principal unlike a prosper.com loan. So, I just don't see why anyone in their right mind would use propser.com. You would much more likely make more money on a bank CD than propser.com with NONE of the risk.

Add to that the fact that you have to submit your SS# and bank info, it just seems all too fishy.

Basically, the risk nearly infinitely outweighs the return versus other investment options on prosper.com. Stay clear in my opinion. Seriously, folks.

I've been an investor on Prosper for roughly 6 months now and have been making a low double-digit increase on my income. Prosper partners with Experian (one of the three credit agencies) and allows you to see details on a prospective borrower's credit report including a credit "Grade" which is based off of the borrower's "score band", number of inquiries, number of public records, number of delinquencies in the past 7 yrs, and more. A few points here in response to metropick's comments:
(i) Given that the rate you're bidding as a lender is the APR that will be charged to the borrower, how exactly is a 10% amortized interest rate with a 0% default rate (obviously unrealistic) equivalent to earning only 4.6% on an annual basis?
(ii) Prosper *DOES* provide average default rates to lenders. In fact, Prosper shows you how your bid and the corresponding default rate corresponds to today's average CD rates.
(iii) While it is true that lenders get charged a 1% fee, this is only true for credit grades of HR-A. Lenders who lend to borrowers with the highest credit grade of AA pay no fee. Obviously, borrowers with this credit rating typically get much lower interest rates.
(iv) While it is also true that you are not guaranteed the return of your principal as you are in a CD, this is obviously a higher risk investment.

Prosper verifies the borrower's identity and their stated income. At this point, you as a lender determine if the borrower's credit report is worthy of an unsecured loan. Banks and other financial institutions do this all the time. Prosper simply gives you as an individual the *capability* to earn similar rates. That being said, it takes work to properly identify lower-risk loan candidates. Some lenders look only at credit grade without looking at other key risk indicators like past delinquincies, credit inquiries, debt-income ratio, and public records.

Take a look at http://www.lendingstats.com for an independent site that makes use of historical data that Prosper makes available via web services. That being said, assess the risk for yourself and choose whether the potential reward is worth the risk for you. If you're considering becoming a lender, I strongly suggest reading the Prosper lender forums and watch the Prosper Days videos they make available on their website.

Proper.com is definiately something I've been interested in for a while, and I finally decided to "jump in" the swimming pool with other lenders.

Propser is a bit like a matchmaking site--you're shopping for a mate. Or, in your case, a borrower who has a good statistical record of paying back their loans, a reasonable reason for wanting the loan, and the profit potential is good enough that the interest income won't be swallowed up by inflation and income taxes.

Sometimes though I lend with my heart and not with my brain. I am a skydiver, and I found a Prosper borrower who was asking for a small loan to help finance her flying lessons. Her career goal is to become a commercial pilot.

Considering that her credit history is non-existent (she can't be but 18), I lent her $150 anyway towards her flying lessons. I even sent her an email suggesting how she can make some money with her flying skills on her way to getting her CPL: she could fly a skydiving plane for a dropzone on the weekends to help pay her loans and her schooling.


However, those loans aside... most of Prosper's interest is coming from people who have been targeted by credit card companies through actuary science as too risky. Or, in Bank of America's case, the victim of massive interest rate hikes across the entire credit card membership.


Even if you do not invest in Prosper, the concept itself--if it grows large enough--could become a powerful competitor in the lending market that could drive some usury credit card companies out of business.

And *that* is music to my ears!