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How do lending circles work?

A low-cost, short-term loan alternative that can help build your credit.

If you find yourself regularly relying on short-term loans, you might want to consider a lending circle instead. These formal and informal lending circles allow you to access small-dollar, low-cost loans funded by the pot that you and other circle members contribute to. Informal lending circles have been around for centuries, but now some companies have taken that concept and adapted it so that it can also build your credit.

What is a lending circle?

A lending circle is a group of people who pitch in to lend each other money at low or no cost. They’re also sometimes called rotational savings clubs or rotational savings and credit associations.

Traditional vs. online lending circles

Traditionally, lending circles were informal operations between members of a family or a community, so there was a social obligation to repay. Now, you can participate in online lending circles, where you earn the trust of other members based on your past participation.

Traditional lending circles generally functioned outside of the greater national economy — meaning they had little or no affect on your ability to borrow money elsewhere. But now, online lending circles have started reporting on-time repayments to credit bureaus, making it an option to build your credit.

How lending circles work in 3 steps

With lending circles, you can borrow money in cycles. While it depends on the lending circle you participate in, most typically follow these steps:

  1. Decide on the terms. Lending circle members first decide on and agree to how much they each want to borrow, how much to pitch in and how frequently members need to pay. They also decide on any interest or fees.
  2. Pay into the pool. Each member of the lending circle contributes a fixed amount that was agreed on in the beginning. Often, you pay into the pool every two weeks or once a month, depending on the terms you agreed on.
  3. Take turns borrowing. Different members of the lending circle take turns withdrawing the loan from the pool until each member has borrowed.

Once everyone has borrowed from the pool, the cycle is over. With online lending circles, new members are typically limited to smaller loan amounts. But you can work your way up to larger pools once you’ve gained trust.

Can I join a lending circle?

You generally need to meet two requirements to join an online lending circle:

  • Steady income. You need to show that you regularly have income coming in and can afford the monthly cost.
  • Less than 50% debt-to-income ratio. You might not be able to join if your monthly debt obligations are more than half of your monthly income.

Some lending circles made for low-income communities might also have maximum income requirements. But you generally don’t need to meet any requirements at all if you create your own informal lending circle with friends and family.

Compare 3 lending circle companies

Let’s take a look at how three lending circle companies work:


Esusu is an app that allows you to create a lending circle with friends and family on your phone. It charges a $10 fee each time you pay into the pool, which members of the group split among themselves — so a group of 10 would pay $1 each.

Once you and the other members of your group agree to the terms, Esusu withdraws your repayment from your bank account five days before each due date.

The company reports all on-time payments to the three major credit bureaus to build your credit score. It also gives you an alternative “Esusu score” that you might be able to use to get credit while you continue to build your traditional credit score.


EMoneyPool is an online lending circle that allows you to join a pool — meaning you don’t have to enlist friends to join with you. How much you pay depends on how soon you want to borrow funds. To get your funds right away, you pay an 8% fee. Take a turn in the middle and you pay 3% to 5%. The last to borrow only pays a 2% fee.

Like Esusu, EMoneyPool withdraws your repayments from your bank account automatically. It also reports your repayment activity, though it only uses Equifax.

Mission Asset Fund

Mission Asset Fund offers online lending circles you can join after filling out an application and taking financial education courses online. Typically, circles include six to 12 people who borrow between $300 and $2,400 a month.

It also reports your on-time repayments to the major credit bureaus and claims that participants increase their score by an average of 168 points.

What’s the difference between a lending circle and peer-to-peer lender?

While both lending circles and peer-to-peer lenders are both funded by individuals, they work slightly differently.

With a lending circle, you’re both the borrower and lender. With a peer-to-peer loan, investors offer funding to earn money in interest, but don’t borrow themselves.

As a borrower, a peer-to-peer loan works a lot like any lender-funded loan — you have to meet similar credit and income requirements, and you receive the loan as soon as it’s funded.

How can I benefit from a lending circle?

From its low cost to its reporting of on-time repayments, here are a few perks of joining a lending circle:

  • Low-cost funding. Lending circles can be one of the least expensive funding options out there, especially if you have bad credit.
  • Borrow from people you trust. If you create your own circle, you personally know the people you borrow from. And if not, you can often see a history of borrowers’ on-time repayments with that group.
  • Improve your credit. Online lending circles now generally report on-time repayments to credit bureaus to help improve your credit score.

When might I want to consider other options?

Joining a lending circle might not be the best solution if you find yourself in any of these situations:

  • You have an emergency. You might not be able to borrow first — and if you do, you might have to pay more.
  • You only want to borrow once. While you don’t have to make a commitment, lending circles are most beneficial to people who want to borrow more than once, since your options are often based on trust you develop in the circle. In some cases, a debt consolidation loan may be a better option to pay down high-interest debt — even if you have bad credit.
  • You don’t have a lot of time. Joining a lending circle might take more time and effort than your standard personal or short-term loan.

Compare personal loan options

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Name Product Filter Values APR Min. credit score Loan amount
Best Egg personal loans
Finder Rating: 3.8 / 5: ★★★★★
Best Egg personal loans
8.99% to 35.99%
$2,000 to $50,000
Fast and easy personal loan application process. See options first without affecting your credit score.
LightStream personal loans
Finder Rating: 4.83 / 5: ★★★★★
LightStream personal loans
7.49% to 25.49%
Good to excellent credit
$5,000 to $100,000
Borrow up to $100,000 with low rates and no fees.
PenFed Credit Union personal loans
Finder Rating: 3.6 / 5: ★★★★★
PenFed Credit Union personal loans
7.99% to 17.99%
$600 to $50,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
Upstart personal loans
Finder Rating: 4.15 / 5: ★★★★★
Upstart personal loans
6.40% to 35.99%
$1,000 to $50,000
This service looks beyond your credit score to get you a competitive-rate personal loan.
Credible personal loans
Finder Rating: 4.3 / 5: ★★★★★
Credible personal loans
4.60% to 35.99%
Fair to excellent credit
$600 to $100,000
Get personalized prequalified rates in minutes and then choose an offer from a selection of top online lenders.
First Premier Lending
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First Premier Lending
5.99% to 35.99%
All credit types
$100 to $20,000
Short-Term Loans to Fit Your Needs

Bottom line

Lending circles can be a great short-term loan alternative if you continually need funds to cover unexpected costs. With few requirements to join, it’s usually inexpensive and can help build your credit. But it can take more time than other types of financing — making it less than ideal for emergency situations.

You can find out how it compares to other options by reading our guide to short-term loans.

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