Both New York Times and Business Week magazine today feature an online startup Prosper.com, which eliminates the middleman in financial markets of lending and borrowing. Registered users can ask other registered users to lend them money, with interest rate depending on the credit worthiness of the borrower and current supply-demand curve. According to Business Week:
When the listing ends, the bids with the lowest rates are combined to produce a single loan that’s repaid over three years. Prosper draws payments from the borrower’s bank account and sends them monthly to the various lenders’ accounts. For its cut, Prosper charges borrowers a fee equal to 1% of the funded loans, as well as a 0.5% annual loan-servicing fee to lenders.
NYT also explains some of the process:
Loans are not secured by collateral and are paid off over three years at a fixed rate, with no prepayment penalty. Lenders essentially deposit their money with Prosper – which holds it in an interest-bearing account with Wells Fargo – and either review the loan requests individually or fill out a form permitting Prosper to allocate money to borrowers who meet certain criteria.
Hi Alex, just wanted to point out that Prosper is a US copy cat
of Zopa – which we launched in the UK last March, and we’re aiming to launch in the US in Q2 this year, also in San Francisco, so we’ll be taking on Prosper head to head!
There’s some discussion about the pros and cons of Zopa vs. Prosper going on over that the Zopa blog which you might be interested in. Would be interested in your views as well!