Help Strangers, Earn a Cool 15%
Net lending pioneer Chris Larsen will let you be the banker at his "eBay for money"
By David Futrelle

(MONEY Magazine) – How would you like to get in on the ground floor of...some guy in Maine who needs $500 to fix his car? The latest venture from Chris Larsen, 45, co-founder of online loan giant E-Loan, lets you do that and, if all goes well, make money in the process. At his nine-month-old site Prosper.com, borrowers and savers meet to swap cash directly, bypassing the bank.

Q What's the idea behind Prosper.com?

A Say you have $1,000 in the bank earning 5%, and you're living next door to someone who's paying 19% on his credit card. You're thinking, he's a good guy. Why can't you take your $1,000 and lend it to him at 15%? There's a lot of money in the consumer credit market, about a trillion dollars in all. The credit-card companies enjoy huge profit margins, and individuals should be able to enjoy those returns as well.

Q Why would anyone want to lend money to strangers?

A You can earn more than you would in a money-market fund. High-risk loans on Prosper.com trade as high as 29%.

Q If I want to lend money, what do I do?

A After you register and we validate your identity, you're free to bid on loans. You can view the credit score, but also a story. You can offer the maximum rate the borrower is willing to pay or go lower. It's a classic reverse auction: The borrower gets the lowest rate it takes to complete the loan. Typically you take a small portion of a loan to spread your risk. One thing that surprised us is that people enjoy screening listings. You can lend $10,000 to a hundred prescreened borrowers. But most people prefer to browse, bidding $50 here, $100 there.

Q How do I know that the guy isn't just going to skip town?

A We report to the credit bureaus if a borrower is late with payments; after 30 days we will send the account to a collection agency. We use the same mechanisms that the credit-card companies do and should get the same results.

Q If I want to borrow money on Prosper.com, what do I do?

A Give us the same information you'd give a credit-card company. We look at credit scores and assign a credit grade. You can put up a picture with your pitch or stay anonymous. You pay us a 1% fee when the loan match is made.

Q So you don't think much of Shakespeare's maxim "Neither a borrower nor a lender be"?

A No. Credit is an essential part of the social fabric in America.

...Food, not thought 58% of parents spent more on restaurants and takeout last year than they saved for college, says AllianceBernstein...

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.