Peer-to-peer (P2P) lending lets you skip the bank by connecting you with investors who fund your loan. It’s best for borrowers who can’t qualify for a bank loan or prefer working with nontraditional financial institutions. And it’s an easy way to dip your toes into investing if you’re new to the game.
P2P loans are available through online platforms, which set the rates and terms and underwrites the loans. Each platform works a little differently. Picking the right one for you can depend on factors like your credit profile and how you plan on using the funds.
We looked at factors like rates, terms, fees and turnaround time and how they stood up to other peer-to-peer lenders. We also considered the specific types of loans offered and the eligibility requirements to decide who the platform is best for.
The pool of peer-to-peer lenders is relatively small. This means you might not find the best deal here. If you don’t mind working with a direct lender or connection service, read about our picks for the best personal loans to find an even more competitive deal.
We expanded our focus to include more business lenders, such as Street Shares, Funding Circle and Kiva. We also felt that LendingClub was a better pick for car loan refinancing, rather than business loans.
And we added more background about each platform to give you a better idea of what type of borrower can benefit from each lender the most.
Prosper is the P2P platform that started it all when it opened its doors in 2005 — in the US, that is. Its personal loans can be a good P2P choice for most uses, but its high debt-to-income (DTI) ratio cap of 50% make it particularly great for debt consolidation. And you can check what rates you might qualify for without affecting your credit score. But it can take up to five business days to get your funds, and its origination fee falls on the high side, even compared to other P2P lenders.
Accepts DTI rates of up to 50%
Fair credit OK
No hard credit check for preapproval
High maximum APR of 35.99%
Origination fee of 2.4% to 5%
Turnaround may be up to five business days
You must have at least three open credit accounts to qualify
A group of former Google employees created this platform in 2012 to tap into the market of highly-educated, career-oriented borrowers that are just starting to build credit. Its underwriting algorithm puts weight on your level of education and work experience to help you get you better rates and terms. And it's fast compared to other P2P lenders — you can get your money in as soon as the next business day. But its origination fees are higher than average, and its tight DTI requirements make it less-than-ideal for debt consolidation.
In 2010, a group of Wall Street executives founded Peerform to give more borrowers access to low-cost financing — even without excellent credit. The platform is designed to cut back on operating expenses, so it can afford to offer a low maximum APR and origination fee while only requiring a credit score of 600 credit score. But its range of loan amounts is small, and it caps out at half what some other P2P lenders offer. Plus it can take several days to get your funds.
The second P2P lender to the scene, LendingClub might be the most recognizable P2P lender. It offers a wide range of financing, from healthcare to business loans. But car loan refinancing is where it really shines — even compared to other types of lenders. It claims that customers lower their car loan repayments by an average of $80 per month. And it accepts cars that are up to 10 years old with 120,000 miles.
Funding Circle was founded in 2010 with the aim of bringing more financing options to growing businesses and high returns for investors. Since, investors have poured some $11.7 billion into over 81,000 small businesses. Its rates are low for a business lender, starting at 4.99%. And you can qualify with fair credit. But it doesn't offer loans under $25,000.
Founded in 2013 by two veterans, StreetShares is one of the few business lenders that specializes in funding business owners who have served in the military. Its Patriot Express line of credit is arguably the closest thing you'll find to the now-defunct SBA Patriot Express loan program. And it offers a wide range of other types of financing. It only requires one year in business and doesn't have any hard credit score minimum. But its rates can run as high as 75% for some borrowers.
Kiva is a nonprofit microlender that specializes in funding entrepreneurs. It offers both peer-funded and direct loans. Its direct loans are interest-free — though you'll have to crowdfund part of it yourself through your own social network. Its P2P loans are funded with $25 investments from the public.
While anyone can invest, you won't make a profit — and might not get all of your money back. The main reward is supporting a cause that you believe in.
No minimum credit score
Available to entrepreneurs
Direct and P2P options
P2P loans can come with interest, unlike direct loans
No return for investors
Potentially long turnaround
Min. Loan Amount
Max. Loan Amount
Interest Rate Type
Minimum Loan Term
Maximum Loan Term
What is peer-to-peer lending?
Peer-to-peer lending is a new type of online financing that connects borrowers with investors, who fund the business loan. From the borrower’s perspective, it’s a lot like applying for a loan from a direct online lender.
Rates, terms and loan amounts similar to what you’ll find elsewhere online and slightly higher than what you’d find at a bank. P2P loans also typically don’t require collateral and have more flexible credit requirements than banks. But they still look at your credit score, income and debts. And you still might have trouble qualifying if your credit score is below 670 or have a debt-to-income ratio above 40%.
The main difference between a P2P loan and one from an online lender is that P2P platforms often charge an origination fee, which can be as high as 8%. These are uncommon with other types of online personal loans. It can also take about five more days to get your loan than your typical online lender.
How does peer-to-peer lending work?
Peer-to-peer lending works by connecting borrowers and business owners directly with investors using an online platform, also called a marketplace. The platform sets rates, terms, fees and loan amounts. It also often underwrites the loan — usually using an algorithm.
After underwriting, investors review borrower applications and fully or partially fund the loan. When the borrower repays it, the investor collects on interest and the platform earns money from interest and the origination fee.
How P2P lending works for borrowers
Here’s the general process you’ll go through when taking out a P2P loan:
Apply. Fill out an online application and submit any required documents through the P2P platform.
Get graded. Platforms typically give you a letter grade, which determines the rates and fees you’re eligible for.
Wait for investors to fund your loan. Investors review your application and your grade and decide to either partially or fully fund your loan. This step can take up to a week.
Get your money. The platform sends the funds directly to your bank account when your loan is fully funded.
Pay back the loan. Typically, you’ll make repayments to the platform, or its servicer. The platform then distributes the repayment and interest to the investors.
How P2P lending works for investors
The P2P investing process typically follow these steps:
Apply. Investors also need to fill out an application on the platform to open an investing account.
Review the grading system. Each platform has its own way of rating the risk and potential returns of certain loans. Typically, a low letter rating means a riskier but potentially more lucrative investment. High letter ratings are less risky but have a lower return.
Build your portfolio. Rather than fully funding one loan, most platforms are designed to let you partially fund multiple loans.
Cash out or reinvest. Each month you should receive part of your investment back plus returns as borrowers repay the loan. You can either withdraw them or reinvest the funds to build your earnings.
The average return for investors hovers around 5% for most of these types of platforms — like LendingClub and Prosper. But others can work differently. For example, anyone can invest in a Kiva loan — but you won’t get any returns.
History of peer-to-peer lending
Peer-to-peer lending is relatively new. The first P2P lender was UK company, Zopa, which launched in 2005. Zopa was shortly followed by Prosper and Lending Club in the US.
The aim was to offer affordable credit to borrowers who couldn’t qualify for a bank loan. It planned to do this by using automated underwriting to speed up the process and cut costs. But P2P platforms experienced a higher-than-expected number of defaults, causing some to close.
The P2P lending market was worth around $231.09 billion in 2017, and is expected to reach $820.7 billion in 2025, according to a 2019 report by Adroit Market Research. Investors generally see an average return of around 5% with platforms like Prosper and LendingClub.
Peer-to-peer lending isn’t right for everyone. Weigh the benefits against the drawbacks to decide if it’s the best fit for you.
Available to fair credit. Most peer-to-peer lenders have lower cutoff credit scores than banks — and often look at factors that traditional lenders don’t consider.
Fast approval. It can take a matter of seconds for a platform’s algorithm to process your application and give you a decision.
Risk-free rate check. You can often get an estimate of the rates and terms you’d qualify for based on a soft credit check that doesn’t hurt your credit.
Low investor requirements. You generally don’t need to be an accredited investor to participate in P2P lending.
Origination fee. Almost all P2P loans come with an origination fee — which is not always the case with other types of online lenders.
Long turnaround. It can take as long as a week to have a P2P loan funded, while other lenders can take as little as a day.
Not the most competitive rates. You can often find lower starting rates with direct lenders if you have good to excellent credit.
High rate of default. Several P2P lending platforms have had to shut their doors after too many borrowers failed to pay back their loans.
Who is peer-to-peer lending best for?
Peer-to-peer lending can be a great starting place for borrowers, business owners and investors who are new to the game.
Peer-to-peer loans are best for borrowers who are building their credit, but are solidly invested in a career. These platforms typically rely less on credit score than a traditional lender and use other data to evaluate your creditworthiness, like your work and education history.
For business owners
P2P business lending platforms are ideal for business owners who have fair credit and have struggled to qualify for traditional bank loans. They typically have less-strict credit and revenue requirements, as well as a more streamlined application process.
Peer-to-peer lending is best if you’re used to earning returns on a CD or high-yield savings account and are ready for a slightly higher return. You don’t need to be an accredited investor to qualify — you can sometimes even use a retirement account to invest.
When to consider other types of lenders
Taking out a P2P loan might not be the best choice if any of these situations ring true for you:
You have bad credit. Even with more relaxed credit requirements, you typically need at least a 640 credit score to qualify with most platforms.
You have an emergency expense. You might have to wait a week or more for investors to fund your loan. Consider a direct online lender instead if you need money tomorrow.
You’re in serious debt. You likely won’t qualify if your monthly debt payments are worth more than half your income or revenue.
Unsecured personal loans. Peer-to-peer loans generally don’t require collateral and you can use them for any legitimate purpose, including debt consolidation.
Medical loans. Some lenders like Prosper and LendingClub offer funding through healthcare facilities to fund medical procedures.
Car or home loan refinancing. Some platforms also won’t fund a new vehicle or home loan, but might let you trade in your current balance for a better deal.
Home improvement loans. Providers like Prosper also offer funding specifically for home improvements.
Business loans. Lenders also offer P2P business loans for small businesses. These business loans can help grow your business or get it up and running.
3 alternatives to P2P lending
Borrowers who can’t qualify or want to skip the relatively high rates and fees might want to consider these alternatives.
Direct online lenders. Direct online lenders work a lot like P2P lending platforms, but with lower rates, fewer fees and a faster turnaround. Some might also have more forgiving credit and income requirements.
Community bank loans. Community banks often offer low-cost loans to borrowers who have less-than-perfect credit. If you’re unable to meet the requirements for a P2P lender, this could be a better option.
Credit union loans. Credit unions have a similar philosophy as P2P lenders — they’re owned by their members, rather than a board of directors. And this allows them to offer loans to a wider credit range at lower rates than your typical big bank.
Is peer-to-peer lending safe?
Generally, yes as long as your lender uses SSL security on its online application. Look for the lock feature to make sure the site is secure — and scroll down to the bottom of the page to look for other security badges.
You can make sure the lender you’re working with is legit by reading online reviews and looking out for lawsuits against the lender. Our guide to spotting personal loan scams can tell you what to watch out for.
4 questions to ask when comparing peer-to-peer lenders
Make sure you’re ready to borrow with these four questions:
Am I eligible? Make sure you meet basic credit, income or revenue requirements — or even fill out a prequalification application to see if you make the cut.
What’s the APR? This tells you how much your loan will cost in interest and fees over one year and is the easiest way to compare offers from different lenders.
What’s the origination fee? Most P2P lenders charge a fee before handing you over the funds, which it either adds to or subtracts from the loan balance.
Does it fit my budget? Use our monthly payment calculator to find out if the rates and terms you qualify for are affordable.
How can I benefit as an investor?
If you’re looking to get involved in peer-to-peer lending as an investor, you may benefit from some of the following positive points:
Returns. Many investors have returns of around 5% for a short-term investment.
Opportunity to diversify. You choose how much to fund per loan and can spread your risk among multiple borrowers.
Easy for first-time investors. P2P lending is lower stakes and can be easier to navigate than diving into the stock market.
Different accounts available. You can have multiple account options with some providers, including retirement accounts or standard investment accounts.
Peer-to-peer lending can be a great opportunity for borrowers, business owners and investors who are new to the game. It’s easier to qualify with a limited credit history, and you don’t need to be a seasoned investor to get returns. But it might not offer as good of a deal as other options.
It depends. Most investors attempt to spread out their funds to limit losses, but if you’re only requesting a small loan amount, you may end up with a single investor interested in funding the entirety of your loan. In most cases, however, you will likely have a few lenders funding you.
As with many other types of loans, you typically have to make monthly payments.
If you need a business loan, start by reading our guide to peer-to-peer business lending. If you do decide to apply, you’ll need copies of recent business tax returns, business bank statements, details of existing loans and a detailed balance sheet. Your lender may require other documents, like a business plan, as well.
Not as a borrower. However, the IRS considers any returns as income and you’ll have to pay taxes as an investor.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 950 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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