Now, after shutting down most of its operations since last October, Prosper is re-launching the service by introducing a secondary market that allows financial institutions to tap into its markets. By offering loans to investors willing to bid on them, banks, credit unions, auto-finance companies and others could get access to funds they could use to make loans to more people.
Prosper investors benefit with potentially higher interest rates on loans that have already been vetted by a financial institution, are current and have at least three months of payments that have already been made. Investors can see all the details related to each individual loan.
Though the industry is small, having brokered just $90 million in loans last year, peer-to-peer lending has offered choices to small lenders whose options for car loans and help with credit card debt have increasingly dried up.
These online lending models are gaining popularity as they provide alternatives for both lenders and borrowers, while banks have been nervous about lending to consumers for fear of rising delinquencies and losses. Banks have also been hampered by their limited capital and the bearish stock market, making it difficult and more expensive for them to raise money to fund new loans.
