I’ve been trying out a type of loan marketplace on the web called Prosper.com. Users can sign up to lend or borrow money from other users. Lenders bid on the interest rates they are willing to offer on the loans based on the credit history and situation of the borrowers.
I’ve been in the program for two months now and have lent out about $700.00 at an average interest rate of over 14% (adjusted for risk). Prosper.com handles the receipt of payments and assignment to collections companies if it becomes necessary. They have portfolio plans that makes the bidding on loans easy and automatic.
A few caveats:
- The loans are not liquid (at this time). Once you have lent your money, you can’t sell the loan to someone else, so the only direct way to get your money back is to wait until the loan is paid off.
- The minimum size of an individual loan (from the point of view of the lender) is $50.00. So, when you start receiving principal and interest payments, they will sit in your cash account until it reaches $50.00, whereupon you can fund a new loan with it. The cash deposits don’t earn interest.
- One way to take money out would be to borrow money at a lower rate than you have lent it. Good luck. Business loans such as this tend to have higher interest rates.
- These loans are unsecured credit.
- This is a new way of borrowing and lending. It may not be legal in your locality.
So far, I think it is an interesting and innovative way to earn interest on funds that I don’t currently need to spend. I’m earning far better interest than in my savings account, or in a money market account. I’m earning more than I am with most of my stock or traditional bond investments at present, too. Nice!
