Prosper
Chris Larsen does not want you to pay 14 percent interest on your next credit card. He also thinks that lending small amounts of money to regular folks is an investment opportunity that's hoarded by big financial institutions. So the e-Loan founder introduced Prosper. The San Francisco firm allows regular users to take out loans of up to $25,000. They register with the site, specify how much they need and propose a rate of repayment over three years. Lenders either compete to fund that loan, or don't touch it if the buyer's credit rating or reputation is too risky.
To improve their reputations, borrowers can band together in groups with their offline friends. Members of a PTA, for example, might join together to form a virtual credit union and can all vouch for each other's identity and standing. Groups build their status on the site over time, and the better their reputation, the lower the interest rates they can seek. Larsen thinks borrowers will be less likely to default on loans if there's a real-world stigma attached. Meanwhile, the 35-employee company performs all the background credit checks and takes a 1 percent cut of each loan from the borrower. If it can explain this tricky model to consumers, Prosper might do as its name describes.
source: Newsweek
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