Want to buy a house, start a business, pay for college or pay off high interest credit cards?  With banks making it harder to borrow money, you will need to get creative if you want a loan.  Here’s one idea that’s safe and relatively easy to do; person-to-person lending.

Two companies are leading this field; Prosper and Lending Club. They are both marketplaces for credit that enable people to lend money to other people in a safe, efficient manner. They’re internet companies that are essentially a leap back to a time when people formed credit communities to help themselves live better lives and earn a fair return on their money.

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Both enable borrowers to request loans by posting listings indicating the amount they want to borrow and the maximum interest rate they wish to pay. Lenders, who are just everyday people like you and me, search for and select these listings based on the borrower’s credit history, debt profile, and other factors. Lenders bid on listings by indicating a minimum rate they are willing to accept. When a loan is matched between borrower and lender, Prosper and Lending Club handle all of the tasks needed for payment and collection of the loan.

You create an account, type in how much you want to borrow, and then have people bid on loaning you money. You can even invite your friends and family to bid on your loan.

So, if you borrow $5,000, you may end up having 100 different people loaning you $50 each. These companies handle all the bookkeeping, so you’re only paying back one loan, and they divide it up amongst your lenders.

This is not free money!  Both report all payment activity to credit reporting agencies, so this is an excellent way to establish or rebuild your credit score. But remember, delinquencies are also reported to credit reporting agencies, so bad performance will affect your credit score negatively.

UPDATE: Prosper is currently not accepting new applications, so Fiscal Sanity recommends using Lending Club.