Have some spare money? Want better rates than savings accounts? Are willing to take on some more risk with it? You need to check out Prosper.com. Here is how it works:

“Borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Then the auction begins as people who lend bid down the interest rate. Once the auction ends, Prosper takes the bids with the lowest rates and combines them into one simple loan. Prosper handles all on-going loan administration tasks including loan repayment and collections on behalf of the matched borrower and lenders.”

Fees for the service – “Prosper generates revenue by collecting a one-time 1% fee on funded loans from borrowers, and assessing a 0.5% annual loan servicing fee to lenders.”

Depending on how regular people are with their payments, borrowers are assigned ‘Credit Ratings’. The lower your credit rating, the more interest you end up having to pay to borrow money since lenders would consider you at a greater risk of defaulting.

There is a similar UK service – Zopa which, believe it or not, has lower fees - “Zopa charges borrowers a fee of 0.5% of their loan amount and lenders a 0.5% annual service fee.”

You can read the Zopa Blog here.

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