Want to Loan Me Money? Here's a Picture of My Dog.

Lenders are encouraged to protect themselves by lending small amounts to many borrowers with different risk levels so if one defaults, the lender is not as seriously harmed financially.

Though some borrowers pay interest rates upwards of 20 percent, the loans can still be cheaper than other forms of credit, such as a payday loan which can carry a triple-digit annual interest rate.

Some banking experts question whether 20 percent-plus rates are enough to cover a lender's risk. Bank fees may be annoying, but banks usually have a track record of managing risk, including fraud.

"When you have a brand-new ecosystem like this, you don't know how much fraud can come into play," said Jim Bruene, editor of Online Banking Report.

Prosper tries to prevent fraud by verifying the identities of both prospective borrowers and lenders. While income is self-reported, Prosper randomly verifies some figures by requesting such documentation as a pay stub and looks into other cases where the amount looks suspicious, spokeswoman Tiffany Fox said.

Prosper also relies on lenders and borrowers to spot fraud, and users freely chat about dubious listings or practices on several discussion forums.

It has not come under major assault from the types of overseas scammers that forced Paypal in its early days to freeze accounts without warning, creating a backlash among users. But banking experts predict it is only a matter of time before Prosper becomes a target and must juggle accessibility and security.

For now, borrowers can disclose as much personal information as they wish, weighing the need for privacy with the need to create a compelling pitch. Some liken the experience to online dating.

Last month, when Paul Park of Burke wanted to replace a bank loan that had a nearly 30 percent interest rate, he debated whether to include his picture with his Prosper request for nearly $5,000. Park, 26, a purchasing clerk for a local defense company, ended up posting it "because I thought it would instill more confidence in the lenders."

He was right. His loan was funded by 100 lenders at 9.75 percent interest.

Some lenders are drawn by the idea of investing in people, not impersonal corporations. Andrew Balto, owner of an IT consulting business in Columbia, said Prosper allows him to do good and do well at the same time, unlike the money he lost investing in WorldCom, the telecommunications giant that went under after a $3.8 billion accounting scandal.

"The whole corporate thing turns me off," said Balto, 39, who has lent more than $20,000. On Prosper, by contrast, "you see people getting up in the morning and trying to better themselves and their finances."

For others, it offers novelty.

Kelly Vielmo of the District has money in the stock market and real estate, but chose to lend more than $10,000 on Prosper because it was "something new and off the wall," he said.

The 30-year old business consultant and newly minted MBA has limited his exposure by lending in $50 increments. He also avoids people paying off hard-to-get-rid-of debts such as medical bills and payday loans. He's been averaging a return of 12.2 percent and has had no defaults or late payments. But he also expects he will have his share of defaults and accepts the risk. "I'm early in my career in trying to make a buck," he said.