Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications including The Wall Street Journal, American Banker and Bankrate. Ms. Witkowski’s deep knowledge of government and policy aided a series of investigative stories that triggered congressional hearings on employee claims of discrimination at a federal agency and how indirect auto lenders were being reviewed by regulators.
Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications including The Wall Street Journal, American Banker and Bankrate. Ms. Witkowski’s deep knowledge of government and policy aided a series of investigative stories that triggered congressional hearings on employee claims of discrimination at a federal agency and how indirect auto lenders were being reviewed by regulators.
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Peer-to-peer (P2P) personal loans are financed by individuals or groups of individuals instead of banks or other financial institutions. They come with fixed terms and interest rates, so you’ll know exactly how much you need to pay back each month. P2P lenders may impose less stringent qualification requirements than traditional financial institutions.
The best peer-to-peer personal loans feature accessible underwriting standards, a broad range of loan amounts, flexible repayment terms and competitive rates and fees.
Best Peer-to-peer Personal Loans
BEST FOR LOANS AS LOW AS $1,000
Upstart
Editor’s Take
Upstart has made a mark on the personal loan space because of its artificial intelligence- and machine learning-based approach to borrower qualification. In fact, Upstart estimates that it has been able to approve 27% more borrowers than possible under a traditional lending model. With competitive APRs, Upstart is not a top lender for borrowers who can qualify for more competitive rates. Even so, the platform’s minimum 300 credit score makes it an accessible option to those with fair credit.
Upstart also offers a pretty flexible range of loan options, with amounts ranging from $1,000 to $50,000 so you don’t have to borrow (or pay interest on) more than you really need. And, while Upstart’s loan cap is lower than some lenders—this is likely to be enough for many prospective borrowers.
Even though Upstarts three-, five-, seven-year loan terms are more restrictive than other lenders, it’s likely to be an acceptable tradeoff for applicants who might not be approved in a more traditional lending environment. Plus, it’s available in every state except West Virginia and Iowa, so it’s as widely available as many other top lenders.
Pros & Cons
- Accessible to borrowers with fair credit
- Offers prequalification with a soft credit check
- Ability to choose a custom payment date
- Charges an origination fee up to 8% of the loan amount
- No secured or co-signer option
- Loans only available for three-, five-, seven-year terms
Details
Eligibility:
- Minimum credit score: 300
- Minimum income requirement: $12,000
- Doesn’t allow co-signers or co-borrowers
Loan uses:
- Debt consolidation
- Medical expenses
- Educational expenses
BEST FOR CREDIT SCORES AS LOW AS 600
Prosper
Editor’s Take
Prosper is a peer-to-peer lending platform that was founded in 2005. It offers flexible personal loan amounts ($2,000 to $50,000) and somewhat accessible borrower qualifications. The platform also offers a prequalification process so you can see what rates you’ll qualify for without damaging your credit. What’s more, borrowers can receive their money in as few as three days after accepting a loan offer, so you’re more likely to get loan proceeds when you need them.
Loans terms are available for 24 to 60 months and APRs range from 8.99% to 35.99%, with the lowest rates reserved for the most creditworthy borrowers. These aren’t the lowest rates you’ll encounter in the personal loan space, but Prosper may still be a good choice if you’re in a pinch.
Prosper loans also include origination fees ranging from 1% to 7.99% of the total loan amount, and borrowers are charged a late fee of the greater of $15 or 5% of the unpaid loan amount; there is also an insufficient funds fee of $15 per instance. Even so, there are no prepayment penalties, so you can pay off your loan as soon as you’re able without incurring extra costs.
Pros & Cons
- Flexible loan amounts
- Accessible minimum credit score
- Funding in as few as three days
- Charges origination fees and late fees
- Only available for 1% to 7.99% terms
- High maximum APR
Details
Eligibility: To qualify for a Prosper personal loan, applicants should have fair credit (a minimum credit score of 560)—although the average score of approved borrowers is 717. Applicants also should have a minimum credit history of two years (11 years, on average), as well as a maximum debt-to-income ratio of 50%, excluding mortgages. Prosper doesn’t impose a minimum income requirement, but the average borrower has an income of $89,000. What’s more, co-applicants and co-signers are permitted, so you may be able to qualify even with a weak credit history.
Loan uses: Prosper personal loans can be used for a range of purposes, including debt consolidation. However, in the case of an emergency, the most beneficial uses of a Prosper loan is perhaps for unexpected home repair costs, medical and dental expenses and auto-related expenses. As with many other lenders, Prosper personal loans cannot be used for postsecondary education expenses.
BEST FOR DEBT CONSOLIDATION
LendingClub
Editor’s Take
LendingClub is a peer-to-peer—or marketplace—lender founded in 2007. As the largest online lending platform for personal loans, LendingClub has worked with over 3 million customers and funded more than $55 billion in loans. It’s also one of the most geographically widespread options, with lending capabilities in every state except Iowa and the U.S. territories.
While LendingClub imposes high APRs and no autopay discount, applicants can choose to borrow between $1,000 to $40,000. This is a higher maximum loan cap than some other lenders. That said, LendingClub’s loan terms are limited to two to five years, which is less flexible than other lenders on our list. Borrowers also are charged an origination fee between 3% to 8% of the total loan amount, which is taken from the loan proceeds at funding.
LendingClub also makes debt consolidation easier by offering a balance transfer loan. With this type of loan, LendingClub offers direct payment to third-party lenders, including over 1,700 creditors. Not only does the platform take care of payments for you, you can choose exactly how much of your new loan amount you want LendingClub to pay toward each creditor.
Pros & Cons
- Will directly pay off third-party creditors as part of balance transfer loan
- Co-applicants permitted
- Available to borrowers with fair to excellent credit
- Origination and late fees
- Limited loan term availability
- High APR range
Details
Overview: LendingClub is a peer-to-peer—or marketplace—lender founded in 2007. As the largest online lending platform for personal loans, LendingClub has worked with over 3 million customers and funded more than $55 billion in loans. It’s also one of the most geographically widespread options, with lending capabilities in every state except Iowa and the U.S. territories.
LendingClub also makes debt consolidation easier by offering a balance transfer loan. With this type of loan, LendingClub offers direct payment to third-party lenders, including over 1,700 creditors. Not only does the platform take care of payments for you, you can choose exactly how much of your new loan amount you want LendingClub to pay toward each creditor.
Eligibility:
- Minimum credit score: 600
- Minimum credit history: Three years
- Allows co-applicants
Loan uses:
- Debt consolidation
- Home projects
- Medical expenses
Summary: Best Peer-to-peer Personal Loans
Tips To Compare Peer-to-peer Loans
When you’re comparing personal loans from different lenders, there are a few things you’ll want to keep in mind:
- Compare interest rates and fees. Similar to personal loans, interest rates on peer-to-peer loans generally range from 6% to 36%. Many lenders impose origination fees between 1% and 8% of the loan amount, plus other administrative costs. Compare lenders to identify the option with the lowest overall cost of borrowing.
- Consider the repayment terms. Personal loans usually come with repayment terms between one and seven years. Shorter periods translate into larger monthly payments, so choose a loan with a repayment term that you’re comfortable with.
- Check your credit score. Most P2P lenders impose a minimum credit score requirement that is typically lower than those required for traditional personal loans. Review these requirements to evaluate your approval odds and take advantage of each lender’s prequalification process where available.
- Read reviews. Read customer reviews to gain insight into each lender’s customer service options, application process and other parts of the borrowing experience.
- Ask friends and family for referrals. If you know someone who has worked with a P2P lender, ask them for their recommendations. This can be especially helpful if you’re unsure where to start your search.
What Is Peer-to-peer Lending?
P2P lending is a type of lending that allows borrowers to take out loans from individuals or groups of individuals instead of banks or other financial institutions. This type of lending has become increasingly popular in recent years because the underwriting standards are often more lenient than traditional bank loans.
How Does Peer-to-peer Lending Work?
P2P lending platforms match borrowers with individuals or groups of investors who are willing to lend money. The P2P marketplace manages the application process, moves the loan through underwriting and evaluates the level of risk the borrower poses. The marketplace also sets interest rates.
Based on this determination, the platform matches the borrower with appropriate investors who can review the loan and choose whether to fund it. The lending platform also handles loan funding and repayment, so borrowers do not work directly with their lenders.
Peer-to-peer vs. Traditional Lending
Peer-to-peer Lending Pros and Cons
P2P personal loans can be a good option for borrowers who are not qualified for traditional forms of financing or who need funds quickly. However, this type of loan is not a good fit for everyone, so it’s essential to consider the advantages and disadvantages before committing to terms.
Pros
- Easier to qualify with bad credit or no credit history
- More streamlined application and underwriting processes that can lead to faster funding
Cons
- Requires a hard credit inquiry that can cause the borrower’s credit score to drop
- Origination fees similar to those that apply to more traditional loans
- Fewer hardship options than larger financial institutions, which can increase the chances of borrower default
Can You Invest and Generate Profits Through P2P Loans?
Yes, it’s possible to invest in P2P loans, but it isn’t a mainstream investment for a couple of reasons. Firstly, there are limited platforms that allow you to make this investment. And secondly, it’s risky. You could earn solid returns, but there are also reports of people losing their money as well.
How To Apply For a Peer-to-Peer Loan
Applying for a peer-to-peer loan is similar to other loans, and you’ll typically take these steps:
- Check your credit. Review your credit report and score so you know which lenders you can qualify with. If you find any errors on your credit report, contact the credit bureaus to correct those mistakes.
- Shop around. There are a limited number of P2P lenders, so you may need to expand your search to find the best rates. Look for low interest rates, flexible repayment terms and as few fees as possible that come with the loan.
- Get pre-approval. Once you find lenders that fit your needs, get pre-approved for a loan, if possible. This doesn’t impact your credit score and will tell you what rates you could be offered.
- Submit an application. Find the loan option that works best for you and complete the rest of your loan application. You’ll likely need to provide documentation proving your residence, income and employment.
- Wait for loan funding. Depending on how your P2P lender works, you may be funded right away or your lender may create an anonymous posting that allows people to fund your loan. The latter option can take longer to fund.
- Receive the loan and begin repayment. You’ll receive your loan funds, likely either by check or direct deposit, and then you’ll start repayment. Signing up for automatic payments can help ensure you won’t miss any payments.
Alternatives to Peer-to-peer Lending
Depending on the borrower’s needs and qualifications, a P2P personal loan may not offer the most competitive interest rates or favorable terms. These are some popular alternatives to P2P lending:
- Traditional personal loans. Traditional personal loans are available from banks, credit unions and online lenders. Depending on the lender—and the borrower’s qualifications—a bank or online lender may offer more competitive or flexible terms. The best personal loans come with straightforward, online applications and fast funding speeds.
- Credit cards. Borrowers with excellent credit may qualify for low interest rates on credit cards—or even a card with a 0% APR introductory period. Not all expenses can be paid with a credit card, though, so it may not be an option even for eligible consumers.
- Home equity loans or lines of credit. Home equity loans and home equity lines of credit (HELOCs) are available to borrowers with sufficient home equity. These loans typically have lower interest rates than personal loans. However, they are secured by the borrower’s home, making them a risky alternative to personal loans.
- Personal lines of credit. A personal line of credit is similar to a credit card because consumers can borrow up to a certain amount and make payments over time. Personal lines of credit typically have lower interest rates than credit cards but may require collateral.
- Loans from a friend or family member. Individuals who need fast access to cash may opt to borrow from friends or family instead of a P2P investor or financial institution. However, this isn’t always an option, and getting the agreement in writing is vital to ensure everyone understands the terms.
Methodology
We reviewed popular peer-to-peer lenders based on 11 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the best peer-to-peer lenders based on the weighting assigned to each category:
- Loan cost. 35%
- Loan details. 20%
- Eligibility and accessibility. 20%
- Direct payment to creditors. 15%
- Customer experience. 10%
Within each category, we also considered several characteristics, including available loan amounts, repayment terms, APR ranges and applicable fees. We also looked at minimum credit score requirements, whether each lender accepts co-signers or joint applications and the geographic availability of the lender. Finally, we evaluated the availability of each provider’s customer support team.
Where appropriate, we awarded partial points depending on how well a lender met each criterion.
To learn more about how Forbes Advisor rates lenders, and our editorial process, check out our Loans Rating & Review Methodology.
Frequently Asked Questions (FAQs)
What is the difference between P2P and crowdfunding?
Peer-to-peer lending and crowdfunding both rely on the public to fund your loan, with one big difference: People who fund P2P loans expect to be paid back with interest, while crowdfunders don’t expect repayments. Instead, crowdfunders may donate to your endeavor with no strings attached, or to receive early, discounted access to your product.
Is peer-to-peer lending safe?
P2P lending is both a safe and legal way to get money for a loan or to invest money. As with other types of financing, it’s important to work with a reputable lender because borrowing is not without risk.
How do I borrow money from a peer-to-peer lender?
P2P personal loans are available through several online platforms that connect borrowers with investors. Most of these websites provide streamlined online application processes and offer faster funding speeds than traditional personal loans.
To borrow money from a P2P lender, compare lending platforms, submit an application and wait to be matched with an investor. Then, receive funds and make monthly payments through the P2P marketplace.
Can you make money through peer-to-peer lending?
P2P lending can be a profitable way to invest money, but do your research before choosing a platform. Not all platforms offer the same returns and, as with other investments, P2P lending poses risks.
What are peer-to-peer business loans?
If you’re looking to fund your business with a peer-to-peer loan, you may need to look for peer-to-peer business loans rather than a personal loan. These business loans work similarly to a peer-to-peer personal loan, but they are intended to help your business expand and operate and can come with different terms and interest rates. Nonetheless, P2P business loan lenders aren’t very common, so it may be difficult to secure this type of funding.
Next Up In Personal Loans
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Credit: Source link
