What do you do if you need money but want to avoid borrowing from the banks? In the past, Clark has always recommended credit unions. But now there are even more options available. Prosper.com is a site where people lend money to each other instead of a bank being in the middle. The investor who takes a risk in lending to you earns relatively high returns and you get a low rate. This is a big success that's growing exponentially. The way it works is that a borrower gets a lot of cash from several different people online. That helps lower the individual lender's risk in the case of default. People are essentially becoming their own loan officers by calculating the risk to see if they want to be part of a loan. There's a similar website in Britain called Zopa.com that's getting ready to come to the United States. A little competition in this field is going to be a healthy thing. However, there are some core differences between Proper and Zopa. The former grades your credit and then assigns you a lender, while the latter is tougher and only allows loans to those with moderate credit.

The volume of transactions on sites like these is growing. So is this a threat to the banking business? While it's still small potatoes today, over time it could be. CircleLending.com is also a good site to use for lending to people who are your family members or friends because it helps you negotiate a contractual agreement. Meanwhile, Clark has a rule for lending to family that he calls the "one time out rule." It states that you can lend to a family member once (and only once) as a gift. Even though they will call it a loan, you may never see the money come back. If it does, you'll be pleasantly surprised. It's kind of the same idea as the old saying, "First time shame on you, second time shame on me."