Going Online To Borrow Money From Strangers?

Going Online To Borrow Money From Strangers?
SEATTLE - Thanks to the Internet, you can now go online and borrow money from complete strangers.

New Web sites match people who want to borrow money, with people who want to lend it. But there are serious risks.

Nora Penic applied for a bank for loan to buy a $2,700 chocolate fountain for her fledgling catering business. Nora had declared bankruptcy after running up $250,000 in medical bills for open heart surgery.

"(Lenders) really don't look at the person, at the human factors," she said. "All they look at is the numbers."

Her only alternative would have been to borrow on a credit card. In her case, that would have been at a staggering 29 percent interest.

But now, thanks to the Internet, she and other prospective borrowers can appeal directly to the public.

On prosper.com, a Web site launched last month, borrowers post listings of the loans they want and why, along with their credit scores and the interest they're willing to pay.

Anonymous individuals then make offers to profiles they like, stating how much they're willing to lend and at what rate.

Prosper's CEO Chris Larson says it a lot like eBay, but for money.

"If you leave this to people, they'll do better than institutions can," Larson said.

Jane Boon is one of hundreds of lenders on prosper.com. She's already made 140 loans worth $22,000 at an average interest rate of 22 percent.

"I'm very partial to the quirky business needing a little help," she said.

Jane wasn't put off at all by Nora's credit history.

"People fall through the cracks all the time and she seemed sincere in trying to build herself back up as she got better," Boon said.

But she knows lending on prosper.com is risky business.

"There's no assurance you'll get paid. None whatsoever," she said.

Certified Financial Planner David Mendels calls it closer to gambling than investing.

"If I walked up to you on the street and I said, 'Here's a copy of my credit rating, would you like to lend me $10,000?' Chances are I'd have a hard time getting any money out of you."

Even Nora concedes it's a giant leap of faith.

"You're asking for money from absolute strangers."

On prosper, you can request a loan for up to $25,000. There are no fees to use the site, only a loan fee, which you need to closely examine.

A similar site called zora.com was launched last year in Europe.