For the investment banker in all of us

22 09 2009

Ever wanted to be a banker? Since we all know the state of the banking industry these days, it’s fairly easy to say that it’s difficult to crack the banking business with an entry-level position.

But to hell with that! Wouldn’t it be nice if there was something online, that’s kinda like facebook, where you can find people who need loans if you have some extra cash to lend? Well then I invite you to take a gander…

Basically how it works is this:

Say you are a looking for some cash to pay for school, or a car, or to retrofit your home. Credit is kinda tight right now at the banks, and your credit score isn’t the best (but decent…because you don’t have a credit history and haven’t had the opportunity to destroy your score), but you really need some cash. So you can go to, sign up (“it’s quick and easy!”), identify how much you would like to borrow (let’s say $10,000) and the max interest rate (how about 10%, lets keep it simple) you are looking to pay. Your request gets listed, and now my buddy Joe  (who’s also signed up on Prosper) can offer you a $10,000 loan of his own money at the 10% interest you stated. But here comes the fun part. Now if I think that there’s a pretty good chance you’ll repay it no problemo in the three year repayment period, I can offer you 9.5% for the same $10,000 loan. Better deal for you, and I make the money off interest instead of Joe.

Now the people in the video definitely look like your average Joes, who are saying they are making a killing on by becoming “lenders” to qualified borrowers with good credit scores (min. 640). I guess a website like this makes sense during times like these, where traditional avenues for credit from banks are not easily accessible. Combine the need of some for income with the need to borrow for others, and a site like Prosper is born.

In the meantime, Prosper is sitting back and making at least 4% of fees on each loan, while taking on essentially no risk. This latter part is significant, especially when one lender found that about 20% of all Prosper loans default. On the flip side, one can get a great deal if one is looking to borrow, since there is a two week auction period in which lenders compete by offering lower interest rates. All in all, an it’s incredible idea that should develop and overcome it’s shortfalls, providing a great resource for our inner investment banker.




One response

4 10 2009

The problem is that historically about 40% of loans default. That’s an amazingly high number, and it means that it is almost impossible for leders to be successful.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: