Prosper.com Starts Rating Groups

Prosper.com has finally started rating their borrowing groups! Up until this point, I'd pretty much viewed the groups as useless - being the member of a group seemed offer no advantage to a borrower. For anyone that doesn't know, groups receive a small portion of each payment that a borrower makes. The group leader either keeps that small portion (ideally to compensate for the amount of time they spend screening new members and keeping track of current loans) or shares it with the group. What this amounts to is a higher effective interest rate for the borrower.

Now that Prosper is rating groups, being the member of a group actually adds some information that is not available from a regular credit report. Basically, ratings are based on a comparison of the group's default rate against Experian historical default rates. Groups are rated from 1 to 5 stars, more stars = fewer defaults. This extra information might justify the extra expense of being a group member (I'm still not convinced about it). However, I do have to admit, I'm certainly going to be browsing the established, 5-star groups for my next loan.