Prosper - microlending in the US

Some of you may already have heard about Prosper, a microlending web site that has been around for about a year now. The idea behind Prosper is individuals loaning money to other individuals. You can be both a borrower and a lender. You can lend in small amounts across a number of loans, and its highly likely that if you borrow through Prosper your loan will be funded by a number of lenders. Depending on your credit history and your debt/earnings ratio, you are assigned a credit grade (A, B, C, etc.) that determines your interest rate. You can also specify the interest rate you're willing to pay, but be aware that you're not likely to get funding if you have a high risk grade and you only want to pay 5% interest.

I am both a borrower and lender on Prosper. Both have been good experiences for me (so far), although I will say that repayments, prepayments, and funded loans can be a bit confusing if you're a lender. My advice is to read through the forums (you'll find them on the Help tab) before borrowing or lending. There's a lot of good advice there from those who've gone before you.

Prosper is useful when you don't want to pay the high rates of a credit card, or you can't get funding through a traditional bank. In my case, I wanted $3,000 for some home improvements and the amount was much smaller than a bank wanted to loan. After reading about Prosper I opted to give it a try. My loan funded in minutes. A few months later I decided to loan a little money through Propsper. Loaning is a little more complicated--you can loan money automatically or you can choose your borrowers. You can also tie up funds toward loans that ultimately don't fund, which is frustrating. And there's always the chance that a borrower might default on the loan. You reduce the risk by spreading your loaned money across a number of borrowers and by choosing your borrowers carefully. I have a small amount of money spread across three "C grade" loans with an average return of just over 15%.