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Not too long ago, I jumped on the P2P lending bandwagon, giving Lending Club a try. There are a number of P2P lending sites, allowing for variations that include microloans to the poverty-stricken and student loan P2P lending that focuses on helping students with college costs. And now, if Prosper has its way, it will be possible to for ordinary people to lend money to banks.

Of course, you sort of do that right now. When you put money into a CD or an interest bearing bank account, you are essentially lending the bank money. The bank pays you a yield (often small) for keeping the money there and lends the money to others at a much higher rate. With the new scheme introduced by Prosper, though, you could fund bank loans.

Here’s basically how the process would work:

1. The bank gives out a loan, as usual (the bank will have a limit of $25,000 for loans it wishes to list for funding).
2. After the bank has received three on-time payments, it can offer the loan for bid on Prosper.
3. Investors can partially fund the loan, as P2P lending generally works.

The idea is to provide a place where banks can sell their higher-quality loans. It is an interesting idea, providing a sort of secondary market for regular folks.

What do you think? Would you buy a loan from a bank?

image source: sxc.hu

Post from: Yielding Wealth