Social Lending: You Can Be the Lender or Borrower and Skip the Banks Altogether
George Boelcke CCP
November 06, 2007
If you’ve never heard the name Chris Larsen, you’ve certainly been impacted by him. Larsen is the founder of E-Loan and is one of the people responsible for giving you access to your credit score. Until E-Loan, your credit score was a super secret known only to lenders and the credit bureaus. Kind of like how they get the caramel into the candy bar. But E-Loan actually disclosed credit scores to consumers as the reasoning for setting their lending rates.
Larsen is now the driving force behind another online financial evolution called social lending. His company, prosper.com is a peer-to-peer lending portal that connects borrowers and individuals with money to lend, without banks inserting themselves into the process. Prosper.com has already reached $100 million in transactions and is now being noticed, as well as attracting competition from another company called lendingcub.com.
Prosper.com's original default rates were around three percent, but another company, Lendingclub.com is attempting to reduce this risk even further by only accepting borrowers with a credit score above 640. Currently, these sites also allow a number of lenders to fund smaller parts of a single loan to a borrower, in order to reduce the risk factor.
The site is set up similar to E-bay where you’re seeing a loan request and bid on a portion of the loan that you’re prepared to make. The rate is posted, as are the reasons for the loan, how many people have bid so far, the debt to income ratio of the applicant and a bunch of financial information on the person.
A recent listing showed the heading: “Help me pay for school and fix my car.” The loan application was for $5,000 at a 20% rate. The person had a 26% debt load and there were 22 people who had agreed to lend 46% of the loan to-date. It does come with an expiry date for the listing, similar to the auction ending times of E-bay.
The actual lender is Prosper, but the portion of the loan you’ve agreed to fund is yours - both in terms of risk and investment return. The company does the credit checks and verification and collects the payments before distributing them to the different lenders on a pro-rata basis. Prosper.com is based in San Francisco and backed by some pretty big names in the investment and venture capital markets, including Fidelity.
So Larson is on the leading edge of innovating another area in the finance world, giving banks another reason to hate him all over again.
Larsen is now the driving force behind another online financial evolution called social lending. His company, prosper.com is a peer-to-peer lending portal that connects borrowers and individuals with money to lend, without banks inserting themselves into the process. Prosper.com has already reached $100 million in transactions and is now being noticed, as well as attracting competition from another company called lendingcub.com.
Prosper.com's original default rates were around three percent, but another company, Lendingclub.com is attempting to reduce this risk even further by only accepting borrowers with a credit score above 640. Currently, these sites also allow a number of lenders to fund smaller parts of a single loan to a borrower, in order to reduce the risk factor.
The site is set up similar to E-bay where you’re seeing a loan request and bid on a portion of the loan that you’re prepared to make. The rate is posted, as are the reasons for the loan, how many people have bid so far, the debt to income ratio of the applicant and a bunch of financial information on the person.
A recent listing showed the heading: “Help me pay for school and fix my car.” The loan application was for $5,000 at a 20% rate. The person had a 26% debt load and there were 22 people who had agreed to lend 46% of the loan to-date. It does come with an expiry date for the listing, similar to the auction ending times of E-bay.
The actual lender is Prosper, but the portion of the loan you’ve agreed to fund is yours - both in terms of risk and investment return. The company does the credit checks and verification and collects the payments before distributing them to the different lenders on a pro-rata basis. Prosper.com is based in San Francisco and backed by some pretty big names in the investment and venture capital markets, including Fidelity.
So Larson is on the leading edge of innovating another area in the finance world, giving banks another reason to hate him all over again.
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