Wednesday, May 03, 2006

Something new under the sun (a legal in spirit and letter method of getting around rate caps)

Courtesy of economics_phd on Prosper forums -- I consider this one of the most original hacks I've seen thus far:
Here's my first contribution to " for Dummies," by cellardoor and atlantageek.

Suppose you're an E borrower who wants to borrow $1000 but can't get funded because your state cap is 15%. The logic below would also apply to the 24% Prosper cap. Let's say someone would be willing to fund you at 20%. I propose a simple mechanism to side-step the caps.

1. Have the lender start a group if she isn't a leader already.
2. Set the rewards at 0%, at least until you've listed your request.
3. Make your request for $2000 at 10% (this is the max you can offer, since you'll pay 5% in group rewards).
4. Bid $1000 on your loan.
5. Get the group leader/lender to bid the other $1000.

Notice that the group leader gets 5% rewards on $2000, which is like getting 10% rewards on the $1000 she bid. This is in addition to 10% interest. Voila, we've created a 20% loan for $1000.

I could see this actually forming the basis of a group with a well-funded lender willing to loan on the order of $500-$2000 to many people with small requests trying to avoid caps. Maybe someone with a particular ideological disdain for caps. Libertarian group?

This is somewhat difficult to set up, of course, and would typically require high commitment levels/comfort with a particular borrower.

Since one can't bid on one's own loan, one would also have to get a friend/spouse/relative to sign up and bid the money for you...


At 9:01 AM, Anonymous Anonymous said...

Hey wehere is your RSS/Atom feed link?

At 10:17 AM, Blogger cellardoor said...

I just put it in the sidebar -- is it working?


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