At a time when the credit markets have all but dried up and investors are losing rather than making money in the stock markets, peer-to-peer lending is gaining interest. 

Fairly new to the lending market, P2P lending companies like Prosper, Virgin Money and Loanio are seeing greater interest in their services and it’s not just from borrowers who would normally be turned away from banks and other financial institutions.

“We have seen a rise in the number of people coming into the marketplace with excellent credit scores,” said Catherine Muriel, chief marketing officer at Prosper. Of the loans on Prosper, 45% are prime borrowers with only a small percentage representing borrowers with poor credit, she said.

In the last few weeks, consumers of all stripes have been facing a tough time getting personal loans, whether it’s to buy a new car or finance a home improvement. Investors, on the other hand, only have to look at the daily declines in the stock markets to get a sense of where their investments are heading. Not to mention the slew of failed banks and investment firms leave many investors wondering if there are any places to park their money that’s safe and will give them a decent return.

“The economic climate has people taking new and better ways to finance life goals,” said Asheesh Advani, chief executive at Virgin Money. “Last year it was something they would never consider and now it looks like a viable alternative to consider.” 

For investors who only a year ago would get 4% or 5% on a high yield savings account but now get 2% or 2.5%, loaning money gives them an additional return, he said.

“Lenders are getting better returns,” noted Paul Dholakia, an associate professor of management at the Jesse H. Jones Graduate School of Management at Rice University, who was a researcher on a study of Prosper. “You get twice as much as the interest from a CD or a money market account.”

P2P lending sites provide a venue for lenders and borrowers to meet and make loans. Typically, the Web site will rate the borrower based on financial criteria and the borrower and lender will set the terms of the loan. 

The Web sites have been a haven for consumers with less-than-stellar credit scores because lenders on the sites are more willing to listen to them and give them a chance to sell themselves. But the tightening of credit markets is drawing in a new crop of borrowers, which in turn is making loans for more risky borrowers all the harder to get.

“Lenders are being more and more conservatives in their bidding strategies,” said Muriel at Prosper, one of the leading P2P lending Web sites. “Because there are more borrowers coming on the platform, more lending is shifting to prime borrowers.” That’s not to say borrowers with low credit scores won’t get loans, it just not as easy as it once was.

At Loanio, the P2P lending network that just launched last week, the company makes it easy for all types of borrowers to get loans because its offers a co-signer process that lets a borrower include a co-signer if its credit score doesn’t meet the criteria needed to get a loan on their own.

“We wanted to open our marketplace place not only to those with a certain credit level,” said Michael Solomon, chief executive and founder of Loanio.

While Loanio is only a few days old, Solomon said traffic on the site has been much more than he anticipated.

 “We already have 10,000 members, 390 loans actively posted and 200 lenders requesting deposit money to start lending.” He said he has been hearing that launching now is the worst of times or the best of times but he falls in the latter camp. “It’s the best time to seek out alternatives in terms of investment vehicles and borrowers don’t have as many options to get fair loans in the marketplace,” said Solomon.

While P2P lending sites are seeing greater interest they still face obstacles. For one the fact that these sites are even out there isn’t known by the masses. Not to mention some people are skeptical about putting their financial information on a Web site.

Of the total population of online consumers only a low percentage have any intention of using these sites to get a loan or even know about the Web sites, said Ron Shevlin, a senior analyst at market research firm Aite Group. “They are very popular among the blogshpere people or within the industry but you to general consumers and their not aware of these P2P sites,” said Shevlin.