Internet Changes Everything

Peer-to-peer loans working out kinks - Orlando Sentinel : Business

Prosper Marketplace, an online lending site, sees a jump in business. Richard Burnett | Sentinel Staff Writer Posted January 17, 2007

Source: Peer-to-peer loans working out kinks - Orlando Sentinel : Business

"We believe that the whole idea of reputation and personal connectedness is working in this context," Larsen said. "We're convinced that it is a crucial part of the overall equation."
Experts say it is not surprising to see something like Prosper gain a following outside conventional banks.
"We're talking here about generally smaller loan amounts, and that has always been a market banks just haven't served very well," said Greg McBride, a senior financial analyst for Bankrate Inc., a research firm based in North Palm Beach. "This person-to-person lending approach seeks to fill that void."
Interest rates can be attractive for borrowers and the rates of return good for small-time lenders, while the streamlined paperwork appeals to both groups, experts say.
"What we're seeing is a democratizing of access to both credit and lending, bypassing the traditional financial institutions," said Paul Leonard, director of the California office of the Center for Responsible Lending, a consumer research and advocacy group.
But there are caveats for those who would lend or borrow through Prosper. First, do your homework. Check all the performance data the site provides on different borrowers, lenders and affinity groups. Read the group bulletin boards. Be aware of complaints. Be wary of questionable promises, unrealistic pitches and offers that "sound too good to be true."
More generally, you should play it smart, play it safe and limit your risk, said Lisa Piecora, the Orlando woman who has invested $8,250 in Prosper loans -- still a small part of her overall investment portfolio. After eight of her many small loans defaulted last year, she changed course, and by year's end her gains outweighed her losses.
"I didn't feel I had any real big losses, but I still needed to sit down and find a better way to do this," she said.
"The big lesson learned is I only lend to people with 'B' credit or better. I've spread out the money to about 100 loans and limited myself to $50 to $60 a loan. It was just a matter of diversifying and creating some damage control."

January 20, 2007 at 03:12 PM in | Permalink | Top of page | Blog Home