Baltimore Sun Store

Loans can't exceed $25,000, with the typical borrower receiving $5,000 to $6,000, [Chris Larsen] says. [Prosper] collects an upfront fee from borrowers of 1 percent to 2 percent - depending on their credit rating - and charges lenders an annual servicing fee of 0.5 percent to 1 percent of the outstanding balance.

Jon Ruttenberg, a Baltimore physical therapist, has been a Prosper lender for about six months. He looks for borrowers with top credit ratings and willing to pay a rate of 11.5 percent or more. He likes homeowners and borrowers who seek money to expand their business. He shies away from debt consolidators or those wanting money so they can become a Prosper lender.

Prosper advises lenders to make small loans and spread them out over many borrowers to lessen the impact if a borrower defaults. Prosper charges late fees after 15 days. A collection agency is called in after 30 days. Larsen says the default rate - payments 120 days past due - is about 0.50 percent. But that will likely climb as the three-year loans mature, he says.