eBay style lending

What eBay has done for peer-to-peer selling, others are doing for peer-to-peer lending:

Steve Lubs was looking to get rid of his $8,000 in credit card debt, but his high interest rate had him bogged down. He tried getting a loan through a bank to pay off the balance but couldn't find one with an interest rate lower than 12 percent.

That's when he turned to Prosper, one of several peer-to-peer lending networks that connect people who need a cash infusion with those who have money to lend. About 70 people have pitched in with $100 to $300, totaling the sum he needs to get out of debt, at a rate of 8 percent.

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Prosper lets people borrow or lend up to $25,000, typically by piecing together 50 to 100 small loans. The process is similar to the way an eBay auction works: Borrowers set the maximum interest rate they're willing to pay, and lenders compete to make the best offer. Users looking to borrow money can share how they plan to spend it, whether it's to buy a house or to pay for a wedding.

They can also invite friends to join. "If you get a friend to bid on you, it increases other people's trust in you," Larsen said. "That's where the social capital comes in."

Prosper oversees the process. It checks credit scores for both borrowers and lenders, verifies bank accounts, and then sets the repayment terms.

At first, about 30 percent of the users had blemished credit records that prevented them from qualifying for more traditional loans. But a wider variety of borrowers have joined the network in the past year, Larsen said.

"People looked at peer-to-peer networks as a place you go when you couldn't go anywhere else," he said. "Now it's become one of the new alternatives that's still open."

Lubs has also used Prosper as an investment by loaning small amounts of money -- typically $200 to $1,000 -- to people looking to borrow funds. He has 37 outstanding loans to network borrowers, totaling about $9,000. He said he's been earning an average annual return of 19 percent on the total amount, which is better than what he gets on his investments in the stock market and real estate.

"This is my primary method of investing," he said. "It's the best opportunity I have to increase my rate of return."

Here's the story.

Neither a borrower nor a lender be? Lubs is both. He has a credit card debt of $8,000 and couldn't find a loan to refinance it for less than 12 percent until he tried Prosper where he was able to do so at a rate of 8 percent. Now he's lent $9,000 to Prosper borrowers at an average rate of 19 percent. That's odd enough. But there are many of us who do the opposite: hold large saving or checking account balances at low rates of return while at the same time we have credit card debt at high rates.