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Here is our Mercury News story today (free registration) about Prosper, the online loan marketplace that seems almost too good to be true.

People can borrow money at lower rates than they can at the bank. And lenders can get higher rates than they can get elsewhere too. It works because it cuts out the middlemen, or the banks that have until now claimed a big percentage cut of the loan.

We’ve provided a few examples. We think the ELoan founder Chris Larsen, who now runs Prosper, is on to something. We mention several real examples of how it works, and it seems to be working so far.

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We mention, too, that Zopa, a competitor is following a similar model. However, Zopa is different in that it doesn’t let borrowers form theme-based group on their own. And lenders can’t surf through profiles and choose particular individuals they’d like to support, as we mentioned before.

However, Zopa does see to be more rigorous in its background check on borrowers.

Prosper is pretty streamlined: It requests only your social security number, your bank account, your income level and your drivers license, checks your credit score and then lets the group peer-pressure process do the rest.

Zopa, though, really drills down on your background. In addition to what Prosper does, Zopa will look into how a borrower’s business is performing. It might check the borrower’s eBay rating, their car registration number, and do a “psychographic analysis,” asking borrowers about their attitudes toward money, and the psychology around the loan they are taking out. They might even follow with a phone call to check an employer reference. It’s all part of making lenders feel more secure, says Zopa chief executive, Richard Duvall. “We take great care with their money.” As a result, he boasts a 0.05 bad debt rate — or those loans where borrowers aren’t repaying their loans on time and are in some sort of foreclosure process.

Prosper is still too young to judge; we don’t know what its bad debt rate is. Proof will be in the pudding. Both companies will be interesting to watch. What we can say: After looking over their models, we find the examples compelling enough to consider lending our money through both of these companies.

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