Lenders, Borrowers Hook Up Over the Web; Prosper.com and Other Sites Provide Forum for Individual Bidders Willing to Offer Small Loans
Special to The Wall Street Journal</br></br>A PRIEST NEAR Orlando, Fla., borrows $9,000 for home repairs at an annual rate of 17.75%. A second-year Harvard Business School student wants $15,000 for foreign travel and gets a loan at 8%. A stepmother in suburban Sacramento needs $4,000 to cover the legal expenses of adopting her stepson and gets a loan at 23.75%.</br></br>These three borrowers have one thing in common. They're part of a loan portfolio that I've built, sitting at my computer in New York, with the help of Prosper.com, a new San Francisco-based Web site that facilitates peer-to-peer microlending -- that is, individuals lending money to one another directly.</br></br>For those needing a small loan, Prosper represents an alternative to credit cards or the credit union. And for those with a few dollars to spare, it can be a more entertaining option than savings accounts and bonds. Though there are a few other sites that provide similar services -- and at least one, Zopa.com, that plans to launch in the U.S. later this year -- Prosper, for now, is the most popular.</br></br>Prosper operates like both an auction site and an online dating service. It provides an eBay-like forum where lenders can evaluate hundreds of prospective borrowers, each seeking loans of $1,000 to $25,000, repayable over three years. The borrowers explain why they want the loan, Prosper provides information on homeownership, credit history and debt-to-income ratio, and the loan gets put up for bid at the maximum interest rate the borrower is willing to pay.