We did a thread on this a couple weeks ago. Here it is.
I decided to test it out by investing a few hundred bucks and so far I’ve bid on several loans, ranging from good credit/low interest to mediocre credit/high interest. In a few months we’ll see how well they do.
The idea is pretty simple. Someone posts a request for a loan and the maximum interest they’re willing to pay, lenders get to see their credit rating and information on delinquencies and so forth. Then you bid, dutch-auction style, for the amount of the loan you’re willing to fund and the minimum interest you’ll accept. Prosper then tries to assemble a winning combination of bids to fund the loan. Right now they only offer a term of three years.
The actual loan originates at Prosper, and is then sold to the lenders. So the lenders aren’t really lenders, they are just people buying debt securities.
Every month, Prosper attempts to do a direct withdrawal on the borrower’s bank account for the installment, takes a small cut, and distributes the rest to the “lenders.”
If the payments go into default, Prosper gives the loan to a collection agency, and the lender gets a fraction of whatever they recover, equal to their relative investment in that loan.
In a few months I think I’ll post a detailed thread about how much I make (if anything) and how good an investment I think it is. It certainly is a fascinating experiment.
There’s also a Prosper message board at http://prosper.spreebb.com/