People-to-people lending is the new game in town. It is a unique way of borrowing/lending money where no banks are involved but rather people deal directly with each other. If you want to borrow money, you post your request for a loan with the amount needed and the maximum interest rate you are willing to pay.
If you want to lend money, you bid on the listings that are posted by the would be borrowers. You can lend as little as $50.00. The bids with the lowest interest rates are combined into a single loan to the borrower. Check out www.prosper.com
There are fees involved. The borrower is charged 1% of the loan or $25.00 which ever is higher up front and that is deducted from the amount borrowed. The lender is charged 0.5% of the loan remaining as a loan servicing fee and that is deducted from each payment. Lenders can make over 20% in interest, very much higher than they’d get from a savings account. Also lenders can diversify their portfolio by lending small sums to various clients thus spreading their risk.
Prosper does post the borrowers credit information but lenders also get a chance to see the personal information on each borrower and use that to influence their decision. In some states there is a cap on the amount of interest that lenders can charge borrowers. So in those states this may not be as attractive to the lenders.