Find a better way to borrow or invest with peer-to-peer lending.
If you’re looking for a personal loan to pay for a wedding or renovate your home, a peer-to-peer loan could offer you a unique way to get the funds you need at reasonable rates. Investors fund peer-to-peer loans to see a return on their money, while helping others accomplish financial goals. Read this guide to learn more about peer-to-peer lending.
Compare peer-to-peer loan options
How does peer-to-peer lending work?
Peer-to-peer lending takes place in an online marketplace facilitated by a third-party lender. If you’re looking to borrow, you submit an online application just like you would with any other loan. You provide details regarding your financial circumstances, including income, employment, assets, debts and credit score, and then wait to be approved. Investors can review your application (no personal details) and choose whether to finance your loan wholly or partially.
Why get a peer-to-peer loan?
Peer-to-peer lending has been a growing part of the American credit sector since its inception in 2006. Here are a few reasons why borrowers choose to take out P2P loans:
- Lower rates. You’ll be offered an annual percentage rate (APR) based on your credit history, and this is typically lower than what is offered by a bank. Rates vary between 5.3% to 30% APR depending on what you’re looking to finance and what your credit score is like.
- Check your rate. You can get an interest rate quote without it affecting your credit score, which is usually not possible with a bank.
- Flexible eligibility criteria. Peer-to-peer lenders base your rate on your credit history. You can apply with less-than-perfect credit, but your rate will be higher.
- Less work than a bank. Typically, P2P loan applications are less involved and require fewer documents than a traditional bank loan application. They also tend to have higher approval rates.
What loan options are available?
- Unsecured personal loans. This is a common type of loan available from P2P lenders, and you can use it to finance anything from a holiday to furniture purchases. Unsecured personal loans don’t require collateral. You can usually borrow between $1,000 and $50,000.
- Secured personal loans. If you have security, such as a car or property, you can take out a secured personal loan through a marketplace lender. If you have bad credit, you may have a better chance of being approved if you can provide collateral.
- Debt consolidation loans. Another common reason people take out P2P loans is to consolidate debt. You can bring together debt from separate accounts such as credit cards or personal loans and pay it off at a lower rate with a debt consolidation loan.
- Business loans. A newer type of financing is personal loans for business or P2P business loans. These business loans can help grow your business or get it up and running.
When to consider other types of lenders
- You have bad credit. Typically you’ll need to have good to excellent credit to qualify for a competitive rate with a P2P lender.
- You have an emergency expense. With P2P lending, you might have to wait as long as a week or more for investors to fund your loan.
- You’re in serious debt. Debt consolidation is one of the most common uses for a P2P loan, but it can’t help if you’re already struggling to make debt payments. Instead you might want to consider other options.
- You don’t want to pay fees. Most P2P lenders charge origination fees, so you might want to look elsewhere for a no-fee personal loan.
How can I find the right marketplace lender?
There are a few peer-to-peer or marketplace lenders available in the US right now. Here’s how you can compare and find the right one for you:
- How much will I be charged? This is an important aspect to consider for borrowers and investors. When it comes to borrowing, you need to consider what your rate will be and how much the loan origination fee is. You can generally check your rate without it affecting your credit file. For investors, you’ll want to find out what the provider will charge you in fees.
- Am I eligible? This is an important consideration for borrowers. Check the minimum criteria and make sure you meet it before applying.
- What happens if I default? If you want to invest, see what the marketplace lender has in place in terms of collection services for late or defaulted payments. Some lenders will take on the responsibility of collecting payments and some will charge a fee for this service.
I’m an investor. How can I benefit?
If you’re looking to get involved in P2P financing as an investor, here are the features you can look forward to:
- Lucrative returns. Investors can look forward to returns of between 5% and 9%.
- Diversify your investments. You choose how much to fund per loan and you can spread your risk among multiple borrowers. This lessens the impact of negative results from late payments or defaults from riskier loans.
- Easy for first-time investors. Playing the stock market may be difficult and time-consuming for first-time investors, but P2P lending is a much simpler way to invest. You choose where to put your money based on multiple loan factors and then receive monthly cash flow.
- Different accounts available. You have multiple account options with some providers, including retirement accounts or standard investment accounts.
Peer-to-peer lending is a great alternative form of credit to consider – whether you’re a lender or a borrower. Remember that not every form of credit or investment opportunity is going to be right for you, so compare P2P loans to other options before making a decision.
The history of peer-to-peer lending in the US