Prosper.com - A new way to borrow and invest

Every once in a while you come across a technology or company that can really change the way you’re used to doing things, and I think Prosper.com is one of those companies in the making. The concept is amazingly simple – people looking to borrow money can create a profile that includes how a credit rating while people looking to lend money can search the profiles and decide who they want to lend money to and see what rate they will get in return. No Banks, no contracts, just an open marketplace for cash.

Obviously the rate of return is directly proportional to the perceived risk. If you want to lend money to “TheWorldIsFlat” who has impeccable credit to go along with his $170k income then expect an 8% return on your investment. If you’re willing to gamble a little and lend your money to “Distressed22” whose finances spiraled out of control due to medical bills you can get a 22% return on your investment while helping out someone who needs the cash.

I’m no Warren Buffet, but I don’t know of any investments that have that type of return attached to them. As long as the person doesn’t default on their payments you’re guaranteed a hefty return.

As for the risks, Prosper.com encourages users to invest small amounts of money with several applicants as to minimize your risk. There are also some deterrents to prevent folks from running away off with your hard earned money:

1. Every registered user must submit to a credit check and have “verifiable information”
2. If a person is part of a group (such as firefighters, marines, etc) and is late on their payment, the “group leader” is notified and the group rate is put at risk.
3. If a person misses their payment, they risk having their credit damaged and late fees are assessed.

I love the concept – it takes the power out of the banks and credit card companies and into the people.

Keep an eye on these guys, this idea could be huge.