Loan money to family and friends through Prosper

In my opinion, Get Rich Slowly is the best finance blog on the net. Today JD Roth, the author, posted a question from a reader. Tim's brother-in-law is in college and is having trouble making ends meet. Tim wants to help him out but is "not keen on the idea of just loaning him money directly." The brother-in-law just lost his job and is asking for about $10,000 to pay for his car, rent, and food. In my opinion, Prosper is a great solution. Here are some of the advantages:
  • Tim does not need to loan the full amount. He could potentially lend as little as $50.
  • Tim could endorse his brother-in-law which could help the loan get funded.
  • Tim's brother-in-law would get the help he needs but would be forced to be financially responsible and pay the loan back.
  • Tim has reduced his overall financial liability on the loan but is still fully supporting his brother-in-law.
  • If the loan listing attracts enough attention, Tim could eventually get bid out of the loan reducing his financial liability to zero.
  • Tim can earn a modest return on the money he lends to his brother-in-law, while the brother-in-law can get an interest rate as low as 6% depending on his credit.
  • The loan listing preparation would force Tim's brother-in-law to think through how he currently spends his money, how he plans to use the loan, and how he plans to pay it back.
  • The brother-in-law would learn the importance of maintaining a good credit score.
  • This is better than co-signing for a loan which could have a significant negative to Tim's credit score if his brother-in-law missed payments.
Are there other advantages I've missed? What are the disadvantages? I know that many Prosper lenders read this blog - has anyone loaned money to family through Prosper or funded part of a loan where this was the situation? What would you do if you were in Tim's situation?

If you are new to Prosper, start borrowing here.