Peer-to-peer lending is a way for lenders and borrowers to meet without having banks involved. The details in this article are based on personal experience with Prosper, and the individual details of the process may vary for other sites. There are other microfinance options but I have not yet tried them. The website addresses for all known options will be at the bottom of this article.

A simplified version of the prospective borrower's credit history is displayed, which shows if any delinquencies have occurred in the last seven years, or if public records have occurred, as well as the beginning year of their credit and how many lines of credit. It rates the borrower with ScoreX, which goes from AA, A, B, C, D, E, and HR (high risk), and shows debt-to-income ratio.

Borrowers propose a rate, which abides by their state laws, and is in keeping with their credit history. They write a description of what they need it for, and, hopefully, give a budget of their expenses and show how they can afford another obligation. They may explain any delinquencies that occurred in their credit and how they have learned from that. If they belong to a borrower group, especially one that vets (verifies) income, it is easier for lenders to take the risk.

Lenders (called loan purchasers, because they put up the money, but the peer-to-peer lending website makes the loans) scour the listings for borrowers that merit their trust, based on their own personal criteria. When they bid, they can bid choose the amount they want to bid, with a minimum bid of $50, and they can choose the lowest interest rate they would be willing to receive on this listing if they win. They also select the collection agency that will pursue the borrower if s/he does not meet the obligation. When a lender successfully makes a bid and wins, s/he receives payments, with interest, on a monthly basis. The life of the loans through the site I first tried this through is three years. If a loan is 100% funded, further lenders bidding on it, will drive the interest rate down, something that benefits the borrower.

When a lender is considering which loans to bid on, regardless of what interest rate is proposed, it is important to only bid on ones that you feel sure would repay you, and who give adequate information. There are all types of people there, and people there who could not manage money even if they won the lottery, as well those who make a lot of money, spend very little, and loan money out. While

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