SmartCapitalist.com

Initial Thoughts on Prosper

Friday, February 24, 2006
Prosper.com released as a sort of ebay of loans. How it works is the borrower signs up and goes through a formal screening process similar to what most banks have. After their credit check, they can post for a 3 year loan of up to 25,000.

Then a seller, who ACH transfers money into their online account can "bid" on the loan. This is the interesting part. The lender can bid on a portion of the loan, and the rate that they are willing to lend for.

Now once this is all done, you will receive a payment for your share of the loan every month when they pay. If the borrower does not pay, prosper.com notifies one of their collection agencies. If the loan defaults, you are out of luck.

Here is the nice thing about prosper.com's loan system. Since you get a fixed payment every month, plus the APR, you can do some interesting things financially. You can re-invest in another loan, achieving 2 payments off of your single capital investment. If you put your money back into another loan every time you accumulate enough to make a bid, the compound interest goes crazy. It is possible to yield 2x the standard interest rate. This of course is considering that there will be no defaults. There will be a full review of prosper.com coming soon.