What is a peer-to-peer lender?

What is the loan between individuals?

The peer-to-peer loan (called P2P) connects people who need a loan with people who are willing to lend money. Most P2P loans do not require collateral.

Your entire loan can be funded by a single investor or by many investors offering smaller amounts. Regardless of the number of investors involved, the final funding is handled through the P2P market you have applied for.

How much can I borrow with a P2P loan?

Some P2P lenders offer loans up to $ 40,000, while others cap at $ 10,000. Before applying for a loan through a P2P lender, be sure to check the loan limits. For more information on loan amounts, see our guide on how much you can borrow with a personal loan.

What credit score do I need for a P2P loan?

You generally need a score of at least 580-600 to get a P2P loan. However, the minimum credit score for a loan varies depending on the lender.

If your credit rating is low, compare the rates available for a P2P loan with the rates and terms available from another lender that provides personal loans for bad credit.

How it works

Borrowing money from a P2P lending platform is similar to borrowing from a traditional lender:

• You log into a peer-to-peer lending platform and submit a loan request. It does not affect your credit score.
• The lender assigns a risk score to your application based on your credit rating, income, and other factors.
• People who are interested in lending money (called “investors” because they invest in you, the borrower) review your application. Don’t worry: your identity is withheld. At this stage, investors simply review your qualifications and decide if they want to lend you money.
• If one or more investors agree to fund your loan amount, the lender approves the loan.
• You then provide documents that verify your information, such as ID and pay stubs.
• The lending platform performs a “credit check” to make sure all information is still correct. A serious check does ring your credit score a bit, but your score should bounce back quickly with regular monthly payments.
• Once final approval arrives, the funding process begins. The time it takes to transfer the money to your bank account varies by lender, but can range from several days to three weeks.

What are peer-to-peer lenders?

These five P2P lenders represent some of the biggest names in the industry today:

• Reached
• Prosper
• Peerform
• Funding circle (for business loans)

Alternatives to peer-to-peer lending

If you find yourself in an emergency situation and need funds in your bank account quickly, there are alternatives to P2P lending. For example:

0% promotional rate credit card

If you have a good credit score, there’s a good chance you’ll qualify for an introductory 0% APR credit card. This means that you will not pay interest during the card’s “promotional period” (typically 12-18 months). At the end of this promotional period, you will start paying interest at the card’s normal rate. A 0% promotional rate credit card can be a good option if you know that you will be able to fully repay the card before the end of the promotional period.

Your current bank or credit union

If you’re having trouble finding a loan, talk to your bank or credit union. No matter your credit score, your financial institution can see how often you make deposits, how much you have in savings, and more. They may be willing to lend you money because they know you better than other lenders.

Other online lenders

No two online lenders are the same. Whether you need a personal or business loan, if you decide that a P2P loan company is not for you (or your application is denied), check out other lenders online.

Whichever financial institution you shop at, don’t just check the interest rate on the loan. Also ask if there are any loan origination fees or other built-in costs that will end up making the loan more expensive.

The peer-lender approach offers an innovative twist to personal loans, but it’s not the only game in town. Before signing on the dotted line as a borrower, be sure to shop around and find the loan that best meets your needs.