I read about them in this article on TheRegister. The article sums it up nicely:
The company conducts background checks on loan applicants to get their credit scores and assigns them a risk factor. People willing to make a loan then bid on the interest rate they're willing to charge given the risk. Prosper spreads the loan across multiple loaners to reduce the overall risk for those handing out their hard-earned cash.
You can make about a seven per cent return on your money with minimal risk, which is better than a lot of low-return investments and not quite as a good as what a decent stock trader will see. Risk takers can make far more by venturing their cash on folks with low credit scores.
The real interweb part of Prosper comes from the stories people write to try and convince you to hand over money.
"I am a single, independent, reliable, responsible woman," writes one person. "My problem? I've overextended myself."
"I have two daughters that are graduation from college this year," writes another. "I need to pay off the outstanding balances at the schools in order for them to receive their diploma's in the mail."
We talked to a few people about Prosper, and everyone agreed that there's heart-warming, practical aspect to the company. Can it compete with more than happy to lend credit card companies and far more traditional loaners? We have our concerns.