In between Chase Manhattan Bank and Vinny, who will break your legs if you don't repay your loan, lie new and novel online lenders that act more like dating services than banks. They match people wanting money with others who have money to lend. The two biggest such 'peer-to-peer' lenders, LendingClub.com and Prosper.com, offer borrowers lower rates than banks, and offer investors a better return than they could get from putting their money in a CD. Both companies are headquartered in the San Francisco Bay area, and both are licensed in most states. Rates and rules for the two are similar. While investors' money does not enjoy the FDIC protection it would have at a bank, it enjoys a better than 10% return. Plus, lenders can diversify their risk by dividing their investment, if they want, across hundreds of different loan accounts in increments as small as $25. At LendingClub, a borrower with a good credit rating can expect to pay an interest rate five percentage points lower than at a bank. Since its start in 2007, LendingClub has funded nearly $204 million worth of loans and has paid over $15.6 million to its investors.
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