Borrowers ask cyber-friends to fund debts, dreams

By Karen Brettell

NEW YORK (Reuters Life!) - Never lend money to a friend, the old saying goes, but what about lending to a stranger a few keystrokes away?

The emergence of online communities has prompted some people needing funds to pay off debt or pursue their dreams to turn to cyber-friends to help them, rekindling people-to-people lending and investment opportunities that sidestep banks.

The latest Web site designed to bring borrowers and lenders together is Lending Club (www.lendingclub.com) which was launched this month after originally being introduced as an application in the popular online social network Facebook.

So far 15,000 members have lent and borrowed more than $1 million through the site which boasts better interest rates than banks by cutting out the middle man.

The site makes its money through a fee for arranging and servicing the loan instead of profiting on the rate spread.

"It's a way to get back to what lending was before banks came in, people lending to people," said Renaud Laplanche, chief executive and founder of Lending Club.

A longer running site, Prosper (www.prosper.com), has organized $85 million in loans since launching in February 2006 and has over 400,000 members. The average loan is $6,000.

Borrowers want the money for various reasons -- to pay off debt, start a business, fix up a home, for a wedding -- and often make emotional appeals accompanied with photographs showing their families or themselves.

Some appeals are more unusual. One Lending Club member wanted money to build a recycling plant in Uganda while another was chasing a dream of becoming an underwater photographer.

DEBTS AND DREAMS

More typical was a borrower on Lending Club describing herself as "drowning in debt" after her college years. She was seeking $5,000, offering to repay at a rate of 13 percent.

A Prosper member was seeking to borrow $5,000 at 21.50 percent after losing his "dream job".

"I refuse to let this experience rule me and so my goal is to repay all of my debts and launch a marketing consulting business -- this way I take charge of my destiny!" he wrote.

Laplanche said rates varied from 7.12 percent to 17.86 percent but most loans had rates between 7 percent and 13 percent. The processing fee applied by the site ranges from 0.75 percent to 2 percent.

The average rate on a standard credit card is 13.48 percent, according to Bankrate.com.