Web-based ‘peer lending’ bypasses bank loans

Nash and Fisher are members of Prosper.com, the U.S. leader in a growing trend known as peer-to-peer lending, which facilitates loans between complete strangers. Social lending has been around since the days when needy families turned to the richest man in town, but the Web is breathing new life into the practice. Loans on Prosper and Facebook’s LendingClub have risen to $100 million this year from $27 million in 2006, according to Online Banking Report.

By 2010, the report forecasts $1 billion in peer-to-peer loan originations. “I’m sure banks are watching it,” said Jim Bruene, the report’s author. Zopa.com, a social lending site founded in Britain in March 2005, plans to launch in the U.S. the week of Dec. 3, according to a company spokeswoman. The idea behind the sites is that borrowers can find better rates than traditional banks offer, while lenders can earn higher returns than from a savings account or other investment.

Borrowers on Prosper post how much money they need up to $25,000 the purpose of the loan and what interest rate they can afford. Lenders bid on the loans of their choice, typically funding only partial amounts and diversifying their risk among dozens or hundreds of loans. Most loan requests are for debt consolidation, followed by small business and entrepreneurial purposes. The average loan amount totals just under $7,000.

Prosper claims it has facilitated $98 million in loans since launching in February 2006. Prosper’s added appeal, however, goes beyond the bottom line. Photos and personal narratives accompany borrowers’ requests: A father who needs $25,000 to equip a house and car for his son, who has recently begun using a wheelchair. A young couple seeking $5,000 for their wedding, who plead, “Please help us get married!” A group of young men in Montana who want $1,000 to purchase a professional wrestling ring.