Hey, Buddy, Can You Spare $10,000?

Peer-to-peer loans are rewriting the rules of credit and making bankers out of average folks

Illustrations by Peter and Maria Hoey for TIME

The slumping economy has sent the banking system into panic mode, making it tough for even people with the best credit rating to get a good interest rate. So a rising number of folks looking to consolidate debt, buy an engagement ring, finance their small business or pay off a mortgage are using the Internet to ask for help from a friend or, more often, a stranger.

The nascent peer-to-peer (P2P) loan industry, in which regular people exchange cash with the help of an online facilitator, had about $650 million in outstanding debt in 2007. Prosper, the first such matchmaker in...

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