A. There are more than 50 peer-to-peer (P2P) lending marketplaces today. There are two well known ones - Prosper (the first player) and Lending Club (the largest player).
In theory, it's a win-win for both borrowers and lenders:
- For borrowers: they get lower cost of financing through P2P vs. Banks or Credit Cards.
- For lenders: they get better return than bank CD's, although risks do exist.
Like any lending business, if the borrower defaults, you lose everything, that's the biggest risk for a lender. But P2P marketplaces have some ways to help individual lenders to mitigate such risks - for example, you can invest as little as $25 to a borrower.
If your money is sitting in a CD earning less than low single digit return, or if your IRA account has a fixed income portfolio earning less than 6% return, then P2P maybe a good way to earn you a little higher return (yes, you can even roll some IRA money to it), plus you are helping someone real.
It's fun to allocate a small portion of your money to give it a try, but don't go too big. And Lending Club is probably a good starting place given its large borrower base (it's reported that it screens borrowing applicants and only allow 10% of applicants with reasonably good credit histories to become actual borrowers).