The rigid and time-consuming procedures of traditional banks have unknowingly paved the way for an industry that has grown tremendously in less than a decade. The peer-to-peer lending industry has become a viable alternative to standard bank loans, emerging as a competitor to the traditional banking system.

Growth of Peer-to-Peer Lending

The peer-to-peer lending (P2P) marketplace, also known as the social lending marketplace, works through a simple online platform, which connects borrowers and lenders and thereby cuts out traditional banking protocols. P2P lending platforms do not lend their own funds but act as facilitators to both the borrower and the lender.

The P2P lending system has made the practice of borrowing and loaning money easy. With just a click of the mouse, individuals can easily find loans online without going to banks in person or waiting for approvals. Low-interest rates, simplified applications, and accelerated decisions have made the peer-to-peer lending model a huge success in the digitized world.

Having offered borrowers an improved financial landscape, these institutions are gaining a foothold and gaining momentum. According to PriceWaterhouseCoopers estimates, the market could reach $150 billion or higher by 2025.

Key Takeaways

  • Peer-to-peer lending platforms have risen in popularity as individuals seeking short-term loans and simplified approvals find alternative methods to get loans.
  • For most P2P lending platforms, minimums for personal loans can be taken out for as low as $1,000.
  • Platforms like Upstart, Funding Circle, and Prosper are popular for everything from a car loan to starting a small business, home improvement, an engagement ring, or debt consolidation.

As for revenues, typically P2P lending platforms make money through origination fees charged to borrowers, as well as through interest charged to investors as service fees. Meanwhile, investors generate revenue from the remaining portion of the interest that the borrowers pay on loans.

Popular P2P Platforms

With the rising popularity of peer-to-peer lending platforms, competition and products have increased as well. While these marketplaces operate on the same basic principle, they vary in terms of eligibility criteria, loan rates, amounts, and tenures as well as offerings. Some P2P lending platforms focus on personal loans and target students and young professionals, while others cater exclusively to business needs.

Below are some of the most popular peer-to-peer lending websites (in no specific order).

1. Upstart

Upstart, a venture by ex-Googlers, is a peer-to-peer lending platform based on an academic record. It was founded in 2012 by Dave Giround, along with Paul Gu and Anna M. Counselman as co-founders. According to Upstart, "You are more than your credit score. On Upstart, your education and experience help you get the rate you deserve." Thus, loan eligibility is decided on factors that go beyond the FICO score, such as the school of graduation, academic performance, area of study, and work history.

Upstart offers loans starting from a minimum of $1,000 to a maximum of $50,000 at an annual percentage rate (APR) starting at 6.53%. Upstart offers loans for almost everything, be it for repaying a student loan, attending a boot camp, buying a car, or paying medical bills to support a business. Upstart has become increasingly popular with the younger generation in their 20s and 30s who don’t have a long credit history, making it hard to get a loan based on conventional criteria, but who have the potential to honor the commitment.

2. Funding Circle

Funding Circle is a leading P2P platform with a focus exclusively on small businesses in the U.S. and U.K. The U.S. co-founders started this platform to facilitate funding for small businesses trying to scale. After their own loan was rejected the 96th time, the founders decided to work towards providing a feasible solution for small business owners. Funding Circle has given out $10.9 billion in loans to approximately 77,000 small businesses globally.

The company has not only grown with a huge number of borrowers, but the number of investors has increased as well. Today, its investor base includes more than 93,000 retail investors, financial institutions, banks, and even the U.K. government. Funding Circle offers loans starting from $25,000 to $500,000 for a maximum five-year tenure for any business purpose including expansion, new equipment, hiring more people, or launching innovative campaigns.

3. Prosper

Prosper 503 was the first-ever peer-to-peer lending marketplace in the U.S. The platform has grown tremendously since its inception; it now has a member base of almost 1 million people and has funded over $16 billion in loans. Prosper offers a wide range of loans from debt consolidation to home improvement, short-term and bridge loans, auto and vehicle loans, small business loans, baby and adoption loans, engagement ring financing, special occasion loans, green loans, and even military loans.

These loans are offered from a minimum of $2,000 to a maximum of $40,000 for a term of three or five years, for rates ranging from 6.95% to 36% APR for first-time borrowers. Prosper invites lenders to invest as little as $25 per note; these investments offer competitive returns along with a monthly cash flow option.

4. CircleBack Lending

CircleBack Lending offers various types of loans for people who need fast cash. This peer-to-peer lending platform's personal loans range from a minimum of $1,000 to a maximum of $35,000, with their payday loans starting at $100 up to $1000. Their installment loans begin at $100 and have a maximum of $3000. The APR moves in the range of 6.63% to 36%, and the actual rate that a borrower gets depends upon the credit score, amount of loan, tenure, and credit usage and history and also the state the borrower resides in. 

CircleBack Lending offers personal loans for various purposes: credit card refinancing, debt consolidation, home improvement loans, medical expenses, auto loans, wedding loans, engagement ring loans, small business loans, relocation loans, vacation loans, green loans, motorcycle loans, and boat loans. In fact, their average loan is about two weeks long. For small businesses, CircleBack Lending gives access to personal loans through individuals, rather than as a business entity.

$1,000

The minimum amount that can be taken out for a personal loan through most peer-to-peer lending platforms.

5. Peerform

Peerform, founded in 2010 by Wall Street executives, is another popular P2P lending marketplace. The platform caters to 3-year loans in the range of $4,000 to $25,000, with APR in the range of 5.99% to 29.99%. Peerform believes that the FICO score alone is not an adequate measure of risk and instead has its proprietary Peerform Loan Analyzer to do the job.

According to Peerform, "developed in conjunction with leading economists, the Loan Analyzer represents a differentiated way to determine the creditworthiness of borrowers, enabling individuals with credit scores as low as 600 to secure funds." Peerform offers to fund debt consolidation, installation loans, wedding loans, home improvement, medical expenses, moving, relocation, and car financing.

6. Lending Club

Founded in 2007 by Renaud Laplanche, Lending Club is a premier player in the peer-to-peer lending space. Lending Club is a giant in the online market place that connects lenders and borrowers; the total loans issued to date amounts to more than $50 billion. Lending Club caters to loans for various purposes like personal finance (consolidate debt, pay off credit cards, home improvement, and pool loans), business loans, patient financing (dentistry, fertility, hair, and bariatric), as well as for investing.

The minimum personal loan amount offered is $1,000 ($5,000 for businesses), going to a maximum of $40,000 ($500,000 for business). This popular brand became the first publicly traded online peer-to-peer lending company in the U.S., with its successful initial public offering (IPO) on the NYSE in December 2014. The company currently has a market capitalization of over $1 billion.

The Bottom Line

There are many other popular P2P lending platforms other than the ones mentioned in the list above, including Zopa in the U.K., Kiva, and Daric. It's no question that the peer-to-peer lending industry will only continue to grow: as lenders make money, borrowers benefit from easy access to loans at decent rates, small loans for specialized purposes, faster and smoother procedures, and benevolence to small business ambitions.