Sometime around 2006, a website offering peer-to-peer lending made its debut – Prosper. It allowed someone to post a request for money, along with explanation of how it would be used and a proposed interest rate. The loans were given a grade based on the risk of the person (based on their credit-worthiness and history.) Then other people could fund all or part of it. When a borrower paid back the loan, the lender made money – just like the regular banking system with the difference being that it opened up loans and lending to everyone and not just the banking elite.
I love it! I didn’t use it to borrow money, but to loan money. It was an amazing rate of return compared to savings – even the stock market. Sure, I had some investments that went belly up – but the return on the ones that didn’t more than paid for those.
That was until it was SHUT DOWN! Yes, shortly into my run as a money lender, Prosper stopped allowing people in Texas to be lenders. You can still borrow money, but you were no longer able to loan it out. I assumed it had something to do with the banking interests shutting down the competition. As my only interest was as an investment, I started pulling my money out of the site as my outstanding loans were repaid.
Fast forward to today. I still get notifications from Prosper that I have like $7 left in my account (not that I could do anything with it) and it struck me to search to see if there were any new peer-to-peer lending sites that popped up in the last decade. Sure enough… there is another one – Lending Club.
Even at my peak, back when I was on Prosper, I was only loaning a few thousand dollars out at a time. I started with a couple hundred – learned the system – educated myself on good investments – started making money. I am going to do the same thing this time around. I will start with a couple hundred bucks and see what happens. Look for a followup post in six months or so telling you how I am doing.
by Chris Doelle
How about you? Have you done any peer-to-peer lending? (your brother doesn’t count) What other interesting uses of the online economy have you found?