Next time you're in the market for a personal loan, you may find that the lender with the best financing terms isn't your friendly neighborhood bank. It may instead just be your friendly neighbor...period. That's right. More U.S. consumers are taking advantage of an old, but new again, concept of borrowing from other consumers through a personal loan clearinghouse such as Prosper (http://www.prosper.com). It's all part of a new trend in personal finance called "social lending.'
Picture Prosper as what would happen if Ebay went into banking. Would-be borrowers go on-line and enter information about how much money they need, what interest rate they are seeking, and how long they need to pay the money back. What allows this process to work are the investors out there, dissatisfied with their current rates of return, who now have the option to review these potential borrower profiles on-line and bid on the ones they like best. Lenders have the potential to earn significantly higher returns on their funds than they would through typical investment channels (an overall average of 9.28%). What does Prosper get out of all this? They charge a modest fee for both the borrowers and lenders in exchange for their services.
Social lending is growing in popularity at a very fast rate, rising from $27 million in 2006 to in excess of $100 million projected for 2007. With the Web as a catalyst, the practice is projected to hit $1 billion in loan volume by 2010. Many of us have lived next door to a neighbor who was a banker. Soon, our neighbor may be the bank itself.