Person-to-Person (P2P) lending is an innovative solution for credit worthy buyers who need money and lenders who have extra cash at hand. When US economy is in doldrums due to credit-market crisis, P2P lending business model is helping individuals who need small loans. Given the success of this consumer lending model, large financial institutions need to watch carefully the development in this space. One of the leaders in P2P lending is Prosper.
How Prosper works?
Lender registers at Prosper and sets a minimum interest rate they are willing to earn and bid in the increments of $50 to $25K. Lender can use credit scores, histories, borrowers personal stories, endorsement from friends and group affiliations to select borrowers.
Borrower creates a loan listing of up to $25K and set the maximum rate they are willing to pay to lender.
Prosper takes the bids with the lowest rates and combines them into one simple loan to the borrower. The company handles all on-going loan administration tasks including loan repayment and collections on behalf of the matched borrower and lenders. The company generates its revenue by charging borrower 1% to 3% fee on funded loan and 1% per annum loan servicing fee to lender.
Wednesday, December 23, 2009
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