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Prosper lets people borrow or lend up to $25,000, typically by piecing together 50 to 100 small loans. The process is similar to the way an eBay auction works: Borrowers set the maximum interest rate they're willing to pay, and lenders compete to make the best offer. Users looking to borrow money can share how they plan to spend it, whether it's to buy a house or to pay for a wedding.

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They can also invite friends to join. "If you get a friend to bid on you, it increases other people's trust in you," Larsen said. "That's where the social capital comes in."

Prosper oversees the process. It checks credit scores for both borrowers and lenders, verifies bank accounts, and then sets the repayment terms.

At first, about 30 percent of the users had blemished credit records that prevented them from qualifying for more traditional loans. But a wider variety of borrowers have joined the network in the past year, Larsen said.

"People looked at peer-to-peer networks as a place you go when you couldn't go anywhere else," he said. "Now it's become one of the new alternatives that's still open."

Lubs has also used Prosper as an investment by loaning small amounts of money -- typically $200 to $1,000 -- to people looking to borrow funds. He has 37 outstanding loans to network borrowers, totaling about $9,000. He said he's been earning an average annual return of 19 percent on the total amount, which is better than what he gets on his investments in the stock market and real estate.

"This is my primary method of investing," he said. "It's the best opportunity I have to increase my rate of return."

Carson Evan of Alexandria used Virgin Money to lend his younger sister $17,000 to pay off her credit cards. With her interest rates, she would have needed 15 years and $70,000 to pay off that debt. Instead, she can repay her brother's loan over five years at 3 percent.

"I know I could be getting a better return on it someplace else, like the stock market," Evan said. "But this was the right thing to do."

He said making the loan through Virgin Money took the awkwardness out of lending to a family member. Rather than paying him back directly, his sister writes a monthly check to Virgin Money, which then wires the money to Evan.

"It added an air of legitimacy to it," said Evan, a 29-year-old software engineer. "It's better if she's not writing the check directly to me, to pay back her brother, even though she is."

John Vyge, principal with Hillebrand Financial Planning in Dulles, said using a social lending network to correctly document a loan between family members or friends can minimize the chances of the relationship being damaged by a disagreement over the terms or repayment.


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