Best Peer-to-Peer Lending

Peer-to-peer lending lets you be the borrower or the investor

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If you can’t or don’t want to borrow money from a brick-and-mortar bank or a conventional online lender, peer-to-peer (P2P) lending is an option worth exploring. P2P lending works differently from the financing you may have received in the past. You are not borrowing from a financial institution but rather from an individual or group of individuals who are willing to loan money to qualified applicants. P2P lending websites connect borrowers directly to investors, as these lenders are called. Each website sets the rates and the terms (sometimes with investor input) and enables the transaction.

P2P has only existed since 2005, but the crowd of competing sites is already considerable. While they all operate the same basic way, they vary quite a bit in their eligibility criteria, loan rates, amounts, and tenures, as well as their target clientele. To jump-start your search, we scoured the online P2P marketplace and came up with these top five platforms, depending on your exact financial situation.

Best Peer-to-Peer Lenders–October 2020

Lender Best For APR Range Minimum Loan Amount Maximum Loan Amount Terms Recommended Credit Score
Peerform Best Rates 5.99%–29.99% $4,000 $25,000 3 or 5 years 600+
LendingClub Best for Fair Credit 10.68%–35.89% $1,000 $40,000 36 or 60 months 600+
Upstart Best for Limited Credit History 7.98%–35.99% $1,000 $50,000 3 or 5 years 620+
Prosper Best for Established Credit History 7.95%–35.99% $2,000 $40,000 3 or 5 years 640+
Funding Circle Best for Small Businesses 11.29%–30.12% $25,000 $500,000 6 months–5 years 660+
Payoff Best for Fair Credit 5.99%–24.99% $5,000 $40,000 24–60 months 640+
Loan amounts, APR, and repayment period may vary by loan purpose or type.

Peerform: Best Rates

Peerform

Founded by a group of Wall Street executives, Peerform has been around since 2010. Applicants with excellent credit may enjoy rates as low as 5.99%, but the maximum loan amount is only $25,000.

Pros
  • Competitive interest rates for borrowers with excellent credit

  • No prepayment penalties

Cons
  • Low loan maximum

  • Loans not available in five states

Other important information:

  • Maximum/minimum amount you can borrow: $4,000 to $25,000
  • APR range: 5.99%–29.99%
  • Fees: Origination fees range between 1% and 5%. Late fees are $15 or 5% of the unpaid payment, whichever is greater. If you opt to pay by check instead of direct debits from your bank, there’s an extra $15 fee per payment. Failed payments result in a $15 fee per draft attempt. Peerform doesn’t charge prepayment penalties. 
  • Minimum recommended credit score: 600 FICO score
  • Other qualification requirements: Your debt-to-income ratio (DTI) should be less than 40%, and you need at least one open bank account. Your credit report should also show at least one revolving account and be free from current delinquencies, recent bankruptcies, or collections (other than medical) in the last 12 months. 
  • Repayment terms: Three or five years
  • Time to receive funds: Funds are distributed within three days of final loan approval, though it could take some additional time for your bank to process them.
  • Restrictions: Funds cannot be used for education-related expenses or to refinance student loans. Loans aren’t available to residents of Connecticut, North Dakota, Vermont, or West Virginia.
  • The lender side: Institutional investors (organizations that invest on behalf of their individual members/clients, such as hedge funds, mutual funds, pension funds, etc.) who purchase whole loans are eligible to offer financing through Peerform.

LendingClub: Best for Borrowers With Bad Credit

LendingClub

LendingClub is a giant in the peer-to-peer lending community. Since it was founded in 2007, it has issued $50 billion in loans and connected more than three million borrowers with investors. Personal loan applicants may borrow up to $40,000. LendingClub is reportedly open to working with borrowers who have fair credit scores (starting at 600 and up). You can get an idea of your loan’s interest rate with an initial soft credit inquiry, which won’t ding your credit score (a hard inquiry occurs when a loan is issued).

Pros
  • No prepayment penalties

  • Prequalification available

Cons
  • Average origination fee is 4.86%—suggesting few borrowers qualify for the lowest advertised fees

  • Long time to receive funds

Other important information:

  • Maximum/minimum amount you can borrow: $1,000 to $40,000
  • APR range: 10.68%–35.89%
  • Fees: Origination fees range from 2% to 6%. Late fees are $15 or 5% of your unpaid payment, whichever is greater. There is no prepayment penalty.
  • Minimum recommended credit score: Not disclosed, reported to be 600. Your credit history, credit score, and other details will be evaluated to predict your risk when you apply. You’ll need a high credit score, low DTI, and a lengthy (and well-managed) credit history to qualify for the lowest rates. 
  • Qualifications: You must be at least 18 years old, a U.S. citizen or permanent resident, or living in the United States on a long-term visa. You also need a verifiable bank account. 
  • Repayment terms: 36 or 60 months
  • Time to receive funds: As little as four days
  • Restrictions: Iowa residents are not eligible.
  • The lender side: You can start investing with a minimum deposit of $1,000. Fund multiple loans in increments of $25 and up. LendingClub boasts historical investor returns between 4% to 7%.

Read the full review: LendingClub

Upstart: Best for Borrowers With Limited Credit History

Upstart

Upstart, founded in 2012 by a group of former Google employees, has originated more than $6.7 billion in consumer loans. With its mantra, “You are more than your credit score,” the company says its underwriting software can help identify “future prime” borrowers based, in part, on education and employment history, even if those applicants have sketchy or limited credit at the moment. Personal loan borrowers who qualify may be able to access as much as $50,000 in funding at interest rates as low as 7.98%. 

Pros
  • Education or job history, not just credit, considered

  • Higher maximum loan amount than many other P2P lenders

  • Fast funding

Cons
  • High maximum APR of 35.99%

  • Origination fee as high as 8%

  • No co-signers allowed

Other important information:

  • Maximum/minimum amount you can borrow: $1,000 to $50,000
  • APR range: 7.98%–35.99%
  • Fees: Origination fees range from 0% to 8%. Late payment fees are 5% of your monthly past-due balance or $15, whichever is higher. Upstart also charges $15 for returns of ACH transfers or returned checks and $10 (one-time fee) for paper copies of records. 
  • Minimum recommended credit score: 620 FICO score or VantageScore
  • Other qualification requirements: Upstart will check your DTI ratio and credit reports for any information that might exclude you from a loan (such as bankruptcy, public records, more than five inquiries in the last six months, etc.). You must also be 18 years old in most states with a personal bank account, have full-time employment (or a full-time job offer starting within the next six months), and verifiable personal details (name, date of birth, and Social Security number).  
  • Repayment terms: Three or five years
  • Time to receive funds: One business day after you accept the loan
  • Restrictions: Residents of West Virginia and Iowa aren’t eligible.
  • The lender side: Accredited investors can register on the Upstart website. To become an accredited investor, you need either $200,000 in annual income ($300,000 for joint filers) or a net worth or joint net worth of $1 million or more. Upstart boasts a low delinquency rate among borrowers: Close to 90% of loans are current or paid in full.

Prosper: Best for Borrowers With Established Credit History

Prosper

Founded in 2005, the United States’ first peer-to-peer lending marketplace, Prosper, paved the P2P way. Since that time the company has helped more than one billion borrowers obtain financing. Qualified applicants can borrow up to $40,000, with starting rates as low as 7.95%.

Pros
  • Lower maximum origination fee than some other P2P lenders

  • Flexibility to change your monthly payment due date

Cons
  • Slow in funding

  • Must have at least three open credit accounts

Other important information:

  • Maximum/minimum amount you can borrow: $2,000 to $40,000
  • APR range: 7.95%–35.99%
  • Fees: Origination fees range from 2.41% to 5%. Late fees are the higher of either $15 or 5% of the missed payment. If you pay by check, there’s a fee of $5 or 5% of your payment, whichever is lower. There are no prepayment penalties.
  • Minimum recommended credit score: Not disclosed, reported to be 640
  • Other qualification requirements: Your debt-to-income ratio must be less than 50%, with some amount of stated income above $0. Your credit reports must be clear of bankruptcy filings in the last 12 months, have less than five credit inquiries in the last six months, and have at least three open tradelines (credit accounts). 
  • Repayment terms: Three or five years
  • Time to receive funds: Usually within five days
  • Restrictions: Not available to residents of West Virginia or Iowa
  • The lender side: Investors can create an account and start with a minimum investment as low as $25. Prosper’s average historical returns are 5.1%.

Funding Circle: Best for Small Businesses

Funding Circle

Funding Circle was founded in 2010 and has 100,000 investors and counting. The company has helped 81,000 small businesses access funding to reach their goals. If your business has been established for more than three years, and you have at least a 660 FICO score, a P2P small business loan from Funding Circle may be worth considering.

Pros
  • Open to business owners with fair personal credit

  • Fast access to funds

Cons
  • Only businesses more than three years old

  • Hard credit inquiry for general partnerships

Other important information:

  • Maximum/minimum amount you can borrow: $25,000 to $500,000
  • APR range: 11.29%–30.12%
  • Fees: Origination fees range between 3.49% to 6.99%. Funding Circle does not charge prepayment penalties. Late payment fees are 5% of the missed payment. 
  • Minimum recommended credit score: 660 FICO score (personal score)
  • Other qualification requirements: You must have been in business for more than three years and have no bankruptcy filings within the last seven years. 
  • Repayment terms: Six months to five years
  • Time to receive funds: As little as three days
  • Restrictions: Nevada-based businesses aren’t eligible.
  • The lender side: You must be an accredited investor willing to deposit a minimum of $25,000 to your investment account with Funding Circle. The platform’s historical annual returns for investors range between 5% to 7%. Investors will pay 1% of loan repayments in an annual servicing fee.

Payoff: Best for Fair Credit

P

Launched in 2005, Payoff offers loans with a limited credit history which is useful if you’re applying for a loan individually. Borrowers will get access to their FICO credit score and rates as low as 5.99%. However, loans aren’t available in all states.

Pros
  • Free FICO score access

  • No prepayment penalty

  • Prequalification option available

Cons
  • Longer funding times

  • Not available nationwide

  • No joint applications

Other important information:

  • Maximum/minimum amount you can borrow: $5,000 to $40,000
  • APR range: 5.99%–24.99%
  • Fees: 0% to 5% origination fee
  • Minimum recommended credit score: 640
  • Other qualification requirements: Individual applications only
  • Repayment terms: 24 to 60 months
  • Time to receive funds: Within three to six business days
  • Restrictions: Massachusetts, Mississippi, Nebraska, or Nevada are ineligible

What Is Peer-to-Peer Lending?

Peer-to-peer (P2P) lending, sometimes called “social” or “crowd” lending, is a type of financing that connects people or entities willing to loan money with people or businesses that want to borrow money. As an alternative to traditional financing, a financial tech company (aka fintech) creates an online platform that matches loan applicants directly with investors.

Your rate and terms (and whether you qualify in the first place) are still based on common factors that other lenders consider. For example, your credit score, credit history, and income will each play a big role in your ability to qualify for a P2P loan and the price you pay for financing if you do.

If you have excellent credit, sufficient income, and a low DTI ratio, you might find a good deal on a P2P loan. However, if you have credit problems or other borrowing challenges, finding a competitive loan offer (or even qualifying at all) may be a challenge. 

How Does Peer-to-Peer Lending Work?

When you apply for a P2P loan, the process typically involves the following steps.

  1. You complete and submit an online application. This step will usually include a credit inquiry—either soft or hard. 
  2. The lending platform may assign you a risk category or grade. Your rating will impact the interest rate and terms you’re offered. If you’re satisfied with an offer, you can opt to move forward. 
  3. Investors review your loan request. You can include details such as how you plan to spend the money or why loaning money to you is a good risk. Your story may improve your odds of receiving funding. Depending on how the P2P platform is structured, lenders may make bids to try to win your business. However, your loan request might also be passed over. 
  4. You accept the loan. If an investor makes a bid that you’re happy with, you can review the terms and accept the loan. Depending on the platform, the funds could be deposited into your bank account as soon as the same day or within a week. 
  5. You make monthly payments. In general, P2P lenders report accounts to the credit bureaus like traditional lenders, so late payments could hurt your credit score. Late payments may also come with late fees that increase your overall cost of borrowing. 

Types of Loans Available Through Peer-to-Peer Lending

P2P loans can be used for many of the same purposes as personal loans. Here are a few of the loan types you may find on popular P2P websites. 

  • Personal Loans
  • Home Improvement Loans
  • Auto Loans
  • Student Loans
  • Medical Loans
  • Business Loans

The Investing Side of Peer-to-Peer Lending

P2P lending can potentially help investors earn extra income and diversify their portfolios.

P2P investing appeals to many people who are looking to make their savings work for them. When all goes well, P2P investors may enjoy a higher return on their money versus what they would gain in a high-yield savings account, certificate of deposit (CD), or other investments.

Becoming a P2P investor begins with applying to open an account on a P2P lending platform. If you are approved, you deposit money that will be loaned out through the platform to qualified borrowers. You can review loan requests (along with applicant risk grades) and choose the applications you’d like to approve, either providing the full loan amount or a portion of it.

Through the platform, you can track your earnings from principal and interest as your borrowers make their payments. You can cash out your earnings (you’ll likely have to pay taxes on them) or reinvest.

Keep in mind that there’s risk involved, as with any investment. First, there’s no guarantee your borrowers will repay as promised (whether the platform goes after delinquents, and to what extent, is something to check out in advance). There’s also a potential hazard that the lending platform itself could shut down. In either case you might lose a substantial portion of your investment, especially if the loan you financed was unsecured. 

Is Peer-to-Peer Lending the Right Fit?

A P2P loan may be a good fit for those who can’t qualify with conventional lenders or who simply prefer to explore alternative financing sources. Still, bear in mind that despite the fashionable fintech setup, the P2P loan process isn’t considerably different from the traditional one: The most creditworthy applicants will typically qualify for the lowest rates and best terms. Trying to improve your credit may work in your favor. In the meantime, shopping around for the best P2P deal may help you save money.

Methodology

Investopedia’s mission is to provide our readers with unbiased, comprehensive financial product reviews they can trust. We’ve researched dozens of peer-to-peer loan options and compared interest rates, fees, qualification requirements, and other features so we can share some of the best offers currently available with you. Our goal is to provide you with the knowledge you need to make well-informed decisions when you’re ready to borrow.

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Article Sources

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