Peer-to-peer lending is a relatively new form of borrowing, and lending type that cuts out the middleman.
Peer-to-peer business lending can be an appealing option for both borrowers and online lenders, as it often offers lower interest rates, is more cost-effective, and has faster loan approvals than traditional lending methods.
If you are interested in learning more about this exciting form of borrowing and lending, keep reading!
What are Peer-to-Peer Loans?
Peer-to-peer loans offer a unique approach to borrowing that sidesteps traditional financial institutions like banks. Through peer-to-peer lending platforms, borrowers can secure funds directly from individual investors.
While the most prevalent type of P2P loan is an unsecured personal loan—similar in nature to payday loans—secured loans and small business loans have also become part of this expanding marketplace.
Typically, borrowers pay an origination fee, which is a percentage of the loan amount, to the lending platform.
The concept has gained traction as a more personal, flexible, and sometimes less stringent way of securing loans for various needs, including small business financing.
How Does a Peer-to-Peer Loan Work?
In a peer-to-peer loan, a borrower and a lender connect through a specialized P2P lending platform that serves as an intermediary.
Once the borrower’s application is approved, which often involves a credit check and risk assessment, the requested funds are usually crowdfunded by multiple investors willing to lend small amounts.
Personal loans are the predominant form, but the scope has widened to include options like small business loans and even student loans.
The borrower then repays the loan, along with interest, according to the agreed-upon terms.
Importantly, some peer-to-peer loans may come with prepayment penalties, which means you could incur additional costs if you decide to settle the debt before the end of the loan term
- READ MORE: How to Get a Small Business Loan
How to Get Started with P2P Lending
The Securities and Exchange Commission (SEC) regulates peer-to-peer lending platforms in the United States. If you’re looking to get started with P2P loans, keep these five things in mind:
- Research multiple lenders. Before deciding on a lending platform, it’s important to compare multiple options. Consider factors such as interest rates, loan terms, and fees.
- Borrower or lender. If you’re a borrower, remember that you’ll likely need good credit to qualify for a loan. If you’re a lender, you’ll need to decide how much risk you’re willing to take on.
- Understand the risk. As a lender, there is always the risk that the borrower will default on the loan. Make sure you understand this and the other risks involved before you get started.
- How much money? Decide how much money you want to borrow or lend. Keep in mind that, as a borrower, you’ll be responsible for repaying the loan with interest.
- Read the fine print. Once you’ve selected a P2P platform, be sure to read the terms and conditions carefully before getting started.
The Best Peer-to-Peer Lenders
Looking for a P2P platform to use for business or personal use? You’re not alone. The popularity of peer-to-peer lending to get a business or personal loan has grown exponentially in recent years. Loan availability and amounts may vary from state to state, but lending peer to peer is definitely worth considering if you’re in need of some extra cash. Here’s a list of the best P2P lenders:
1. Prosper
The Prosper online lending platform offers business and personal loans between $2,000 and $40,000 with interest rates ranging from 7.95% to 35.99%. In order to be approved for a loan, you must have a credit score of at least 640.
2. Kiva
Kiva is a nonprofit P2P platform that offers a loan amount of up to $15,000. They’re one of the best peer-to-peer lenders that offer a 0% interest rate. There are no minimum credit scores required and zero years of cash flow documents needed. In addition, no collateral is required.
3. HappyMoney
HappyMoney is a peer-to-peer lender that offers The Payoff Loan for debt consolidation. Personal loans between $5,000-$40,000 are available, and rates start at 5.99% APR. You’ll pay the loan back through monthly payments. The maximum loan term is five years.
4. MyConstant
MyConstant offers crypto-backed and institutional loans. A personal loan amount can be up to $50,000 for individuals and $10M for institutional loans. Terms are one to six months, and the APR is estimated at 6% to 8%. There is no credit score requirement to obtain a loan.
5. Peerform
Peerform offers term loans between $4,000 to $25,000 with an APR from 5.99% to 29.99%. These loans have a term length of three years, but can be extended to five years for consolidation loans. You’ll need a 600 credit score to qualify.
6. LendingClub
LendingClub will fund loans between $1,000 and $40,000 to consumers, and a loan amount between $5,000 and $500,000 to businesses. They don’t have competitive interest rates, which fall between 10.68%–35.89%. To qualify for consumer loans, you’ll need a 600+ credit score.
7. Upstart
Upstart offers loans from $1,000 to $50,000. They approve loans within one business day and require a credit score of 620+.
8. StreetShares
StreetShares offers loans ranging from $2,000 to $250,000. The APR rates vary from 8% to 39.9%, and the company requires a minimum credit score of 540 to qualify for a loan.
9. FundingCircle
FundingCircle provides loans up to $500,000. The company has an APR of 10.13% to 36.00% and requires a minimum credit score of 660.
How to Choose a P2P Platform
When choosing a Peer-to-Peer (P2P) lending platform, it’s essential to carefully evaluate various factors to ensure that you select a platform that aligns with your financial goals and risk tolerance. Here are some key guidelines to consider:
- Reputation and Track Record: Research the platform’s history and reputation in the market. Look for reviews and feedback from other users to gauge their experiences. A platform with a strong track record and positive reviews is generally a safer choice.
- Regulatory Compliance: Ensure the platform is compliant with regulatory requirements in your region. This compliance indicates that the platform adheres to certain standards and protocols, offering a degree of security and legitimacy.
- Interest Rates and Fees: Compare the interest rates and fees charged by different platforms. As a borrower, look for competitive interest rates, and as a lender, seek platforms offering attractive returns. Also, be aware of any additional fees, such as transaction or service fees.
- Risk Assessment Procedures: Understand how the platform assesses and manages risk. A robust risk assessment procedure can provide better protection for your investment as a lender, and fair terms as a borrower.
- Loan Diversification Opportunities: For lenders, it’s crucial to have the ability to diversify investments across various loans to mitigate risk. Check if the platform allows for diversification and the ease with which you can spread your investments.
- User Experience and Support: Consider the user-friendliness of the platform and the quality of customer support. A platform with an intuitive interface and responsive customer service can significantly enhance your P2P lending experience.
- Withdrawal and Repayment Terms: Review the terms related to fund withdrawals and loan repayments. Look for flexibility and terms that align with your financial plans.
- Security Measures: The security of your financial and personal information is paramount. Ensure the platform employs robust security measures to protect user data and transactions.
- Types of Loans Offered: Different platforms may specialize in various types of loans, such as personal loans, business loans, or property loans. Choose a platform that caters to the type of loan you’re interested in, either as a borrower or a lender.
- Community and Educational Resources: Some platforms offer a community aspect or educational resources about P2P lending, which can be beneficial, especially for new users.
Comparison of Top Peer-to-Peer Lending Platforms
The table below provides a summary comparison of some of the best P2P lending platforms available now. It highlights key features such as loan amounts, credit score requirements, and special offerings to help you make an informed choice.
| Platform | Loan Amount | Minimum Credit Score | Special Features |
|---|---|---|---|
| Prosper | $2,000-$40,000 | 640 | Business and personal loans |
| Kiva | Up to $15,000 | None | 0% interest rate, no collateral |
| HappyMoney | $5,000-$40,000 | Not Specified | Debt consolidation |
| MyConstant | Up to $50,000 | None | Crypto-backed loans |
| Peerform | $4,000-$25,000 | 600 | Term loans, consolidation loans |
| LendingClub | $1,000-$40,000 | 600 | Consumer and business loans |
| Upstart | $1,000-$50,000 | 620 | Quick approval |
| StreetShares | $2,000-$250,000 | 540 | Varied APR |
| FundingCircle | Up to $500,000 | 660 | Business loans |
- READ MORE: Business Loan Terminology You Need to Know
The Best Peer-to-Peer Lending Options
Let’s take a look at the best peer-to-peer lending options you can take advantage of now:
1. Best P2P Lending App
Prosper is highly recommended as the top P2P lending app for its user-friendliness, transparent terms, and lower interest rates. With Prosper, you have the flexibility to set your repayment schedule, and the lower interest rates can save you a substantial amount of money over time.
2. Best P2P Lending for Bad Credit
Kiva is a standout choice for those with a less-than-stellar credit history. Unlike most other platforms, Kiva doesn’t require a minimum credit score to apply. They focus more on your project’s viability and your capacity to repay, making it more accessible for those with bad credit.
3. Best P2P Lending for Cryptocurrency
MyConstant is a unique P2P lending platform that sets itself apart by offering loans in both fiat and cryptocurrencies like Bitcoin and Ethereum. This feature attracts a wide range of tech-savvy borrowers and investors who are looking for more modern, flexible options.
4. Best P2p Lending for Small Businesses
Funding Circle has been in operation since 2010 and has lent over $18 billion to more than 120,000 businesses across roughly 700 industries. Their proven track record makes them a reliable and credible choice for small business owners in need of capital.
5. Best P2P Lending for Credit Card Debt
HappyMoney is excellent for those specifically looking to consolidate credit card debt. The platform allows you to check your loan rate for free without impacting your credit score, offering a convenient and safe way to manage your debts.
6. Best P2P Online Lender
Upstart offers more than just personal loans; they also offer auto loan refinancing. They stand out for their intelligent pricing model that incorporates more than just your credit score, offering more nuanced and potentially favorable rates.
7. Best P2P Lending Option Overall
The best choice for you ultimately depends on your individual circumstances and needs. Whether you are looking for the lowest interest rate, need to borrow despite a bad credit history, or have other specific lending requirements like financing a small business, your ideal choice will vary.
Take the time to thoroughly research and compare options to find what best suits you.
For those of you who prefer a quick and engaging visual explanation, check out this one-minute video titled ‘Peer-to-Peer Lending (AKA P2P Loans or Crowdlending) Explained in One Minute.’ It’s a concise guide that breaks down the essentials of P2P lending, complementing the information you’ve just read in our article.
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Image: Envato Elements
P2P lending is different, because you borrow money from a private person, a person just like you. It is a digital age way to leave banks and financial institutions away and to do things directly between human beings.
It is fascinating to negotiate with the lender and to try to get as low interest rate as possible, in most cases using emotional arguments.