Best Peer-to-Peer Loans of January 2024 (2024)

Guide to Choosing the Best Peer-to-Peer Lending Websites

Why Should You Use a Peer-to-Peer Loan?

Peer-to-peer lenders are best for borrowers who may struggle to qualify for loans from traditional banks and lenders. P2P lenders have more relaxed borrower requirements, making it more likely that you’ll qualify for a loan.

They also can be a good fit for those who need to borrow money but are ineligible for other types of financing. For example, entrepreneurs that are launching small businesses are unlikely to qualify for traditional business loans, so P2P loans can be a valuable alternative.

When deciding which loan type is best for you, keep in mind that peer-to-peer loans can have higher-than-average interest rates and added fees, such as origination fees, that can add to your overall cost.

Comparing Peer-to-Peer Loan Lenders

When comparing loan offers from peer-to-peer lenders or any personal loan lender, there are a number of factors to consider:

  • APR: The APR is the total cost you pay to borrow money, including interest rates and fees. The higher the rate, the more you’ll pay. The average APR for a loan with a 24-month term is 12.355% as of November 2023, but your rate is determined by your credit score, income, debt history, and selected loan term.
  • Loan Terms: The loan term is how long you have to repay the loan. Most personal loans have terms of five years or less. A shorter term will give you a higher monthly payment, but you’ll also likely get a lower interest rate and a lower overall repayment cost.
  • Origination Fees: An origination fee is charged by some lenders—but not all. The fee is a percentage of your loan amount; for example, a $1,000 loan with an 8% origination fee would add $80 to your loan cost (or it may be deducted from your loan proceeds).
  • Prepayment Penalties: Some lenders charge prepayment penalties if you pay off your loan sooner than is stated in the loan agreement. When comparing lenders, make sure there is no prepayment penalty to avoid those costs.
  • Minimum Credit Score: The minimum credit score is the score you need to qualify for a loan from a particular lender. In general, P2P lenders tend to look for credit scores of around at least 600. However, each lender has its own requirements.
  • Collateral: If you have less-than-perfect credit, some personal loan lenders offer secured loans. You use property, such as a car, as collateral for the loan. Using collateral increases your odds of qualifying for a loan and securing a better interest rate.
  • Loan Disbursem*nt: While some lenders will disburse your loan as soon as the next business day after approving your application, other lenders can take several days (or more). If you need the money fast, make sure you select a lender that offers quick loan disbursem*nt.

How to Apply for a Peer-to-Peer Loan

Most P2P lenders offer pre-qualification tools that allow you to check your eligibility for a loan and view sample rates and repayment terms without affecting your credit score. If you decide to proceed with the loan application, you can usually complete it online.

To apply for a personal loan you’ll need to provide your personal information, including:

  • Your name
  • Address
  • Social Security number
  • Income
  • Employer information

The lender will review your application and perform a hard credit inquiry. If approved, the P2P lender will assign you a risk category and submit your information to its investor platform. Its investors can review that information and make a bid to fund the loan.

Because lenders usually work with institutional investors, such as banks and credit unions, this process is relatively fast, and your loan can be funded and disbursed within a few days.

How Can I Invest and Make Money With P2P Loans?

While P2P lending used to be an attractive way to earn a higher rate of return than stashing money in a savings account, there are fewer options for individual investors now.

Few P2P companies allow individual investors to invest and fund loans; Prosper is one of the few left that allows individual investors to fund consumer loans. With Prosper, you can get started with a minimum investment of just $25.

Other options include:

  • Kiva: Kiva is a P2P lender that issues loans to people across the globe who may struggle to get financing elsewhere. You can invest as little as $25 to help people get small businesses off the ground and support their families.
  • Fundrise: Fundrise is a way to invest in a diversified portfolio of commercial and residential real estate, and you can start with just $10.
  • PeerStreet: Like Fundrise, PeerStreet is a P2P lender focused on real estate. Individual investors can contribute to home offers, bridge loans, and investment property loans. However, it has a higher minimum to start investing at $1,000.

What’s the Difference Between P2P and Crowdfunding?

P2P loans and crowdfunding are both ways to get a lump sum of cash from many people. But how these financing options work is quite different. A P2P loan is usually based on creditworthiness, and it must be repaid with interest over a set loan term. By contrast, crowdfunded funds don’t have to be repaid, and because people decide to donate to the fund based on the service it offers or the cause it supports, crowdfunding doesn’t involve credit checks.

Why Are Some Lenders No Longer Offering P2P Loans?

As a novel idea, P2P loans previously were largely exempt from the regulations and consumer protection laws that applied to personal loans issued by banks and credit unions. However, the U.S. Securities and Exchange Commission (SEC) labeled P2P loans as securities, and therefore they have to be registered with the FEC to comply with federal securities laws. Of the P2P lenders that continue to operate, most have moved away from working with individual investors and instead only utilize institutional investors.

Are P2P Loans a Better Choice Than Payday Loans?

While P2P loans may have higher interest rates than you see advertised by some personal loan lenders, they’re still significantly less expensive than payday loans. With consumer P2P loans, interest rates can reach 35.99% and higher. However, they’re much lower than the APRs of payday loans. According to the Consumer Financial Protection Bureau, the typical two-week payday loan has fees that equate to an APR of almost 400%.

Are P2P Loans Safe?

For borrowers, P2P loans are quite safe. Platforms that offer P2P loans act as intermediaries between investors and borrowers. Peer-to-peer loans aren’t insured or protected by the government. However, that puts most of the risk on investors, rather than borrowers.

Do P2P Loans Affect Your Credit Score?

Most P2P lenders have minimum credit score requirements and perform hard credit inquiries, and each inquiry can cause your score to drop. One exception is crypto-backed P2P loans. These are secured by collateral and can be issued without credit checks, so there are no credit inquiries that can affect your credit.With all P2P loans, your timely payments can affect your credit, too. If you fall behind on your payments and your debt is sent to collections, those actions will show up on your credit reports and cause your score to drop.

Final Verdict

There are fewer peer-to-peer lenders offering consumer loans than in years past, but they can still be useful options for eligible borrowers. If you’ve struggled to qualify for personal loans or business loans because of your credit, you may have a better chance of getting a loan by working with a peer-to-peer lender.

Prosper is our choice as the best overall P2P lender because of its available loan amounts and relatively low credit requirements. However, if you want a higher loan amount—or need more time to repay the loan—you’ll need to find another lender or funding avenue, such as crowdfunding.

And, if you have good credit and stable income, you may qualify for lower rates if you get an unsecured personal loan from a bank, credit union, or online lender. Get quotes and compare rates from our selections of the best personal loan lenders.

How We Chose the Best Peer-to-Peer Lenders

Our team evaluated 38 lenders and collected 1,520 data points before selecting our top choices. We weighed more than 20 criteria and gave a higher weight to those with a more significant impact on potential borrowers.

The top picks were selected based on factors like membership requirements (weighted 15%), average fixed APR (weighted 15%), and average origination fees (weighted 10%).

We also took into account the flexibility of repayment terms, helpful features like prequalification, and whether a co-signer or joint applications are permitted to ensure borrowers get the best possible experience. For further information about our selection criteria and process, our complete methodology is available.

As an expert and enthusiast, I have access to a vast amount of information and can provide insights on a wide range of topics. While I don't have personal experiences or opinions, I can provide factual information and answer questions based on available sources.

Now, let's dive into the concepts mentioned in the article "Guide to Choosing the Best Peer-to-Peer Lending Websites."

Peer-to-Peer Loans and Their Benefits

Peer-to-peer (P2P) lending is a form of lending that connects borrowers directly with individual lenders through online platforms. P2P loans can be a good option for borrowers who may struggle to qualify for loans from traditional banks and lenders [[1]]. P2P lenders often have more relaxed borrower requirements, making it more likely for borrowers to qualify for a loan [[1]]. P2P loans can be particularly beneficial for individuals who need to borrow money but are ineligible for other types of financing, such as entrepreneurs launching small businesses [[1]].

Factors to Consider When Comparing P2P Loan Lenders

When comparing loan offers from P2P lenders or any personal loan lender, there are several factors to consider:

  1. APR: The Annual Percentage Rate (APR) represents the total cost of borrowing money, including interest rates and fees [[2]]. Higher APRs result in higher overall costs for borrowers.
  2. Loan Terms: The loan term refers to the length of time borrowers have to repay the loan. Shorter terms generally result in higher monthly payments but may offer lower interest rates and lower overall repayment costs [[2]].
  3. Origination Fees: Some lenders charge origination fees, which are a percentage of the loan amount. These fees can add to the overall cost of the loan [[2]].
  4. Prepayment Penalties: Certain lenders impose prepayment penalties if borrowers pay off their loans earlier than stated in the loan agreement. It's important to check if a lender has prepayment penalties to avoid additional costs [[2]].
  5. Minimum Credit Score: P2P lenders typically have their own credit score requirements. While some lenders may consider borrowers with credit scores around 600, each lender sets its own criteria [[2]].
  6. Collateral: Some personal loan lenders offer secured loans where borrowers use property, such as a car, as collateral. Using collateral can increase the chances of qualifying for a loan and securing a better interest rate [[2]].
  7. Loan Disbursem*nt: Different lenders have varying loan disbursem*nt times. Some lenders disburse loans as soon as the next business day, while others may take longer. If quick access to funds is important, selecting a lender with fast loan disbursem*nt is crucial [[2]].

Applying for a Peer-to-Peer Loan

To apply for a P2P loan, most lenders offer pre-qualification tools that allow borrowers to check their eligibility without affecting their credit score [[3]]. If borrowers decide to proceed with the loan application, they can usually complete it online. The application typically requires personal information such as name, address, social security number, income, and employer information [[3]]. After reviewing the application, the P2P lender will perform a hard credit inquiry and assign a risk category to the borrower. The borrower's information is then submitted to the lender's investor platform, where investors can review the information and make bids to fund the loan [[3]]. Once funded, the loan can be disbursed within a few days [[3]].

Investing and Making Money with P2P Loans

While P2P lending used to be an attractive way for individual investors to earn higher returns, there are now fewer options available. However, some platforms still allow individual investors to fund loans. For example:

  1. Prosper: Prosper is a P2P lender that allows individual investors to fund consumer loans. Investors can get started with a minimum investment of just $25 [[4]].
  2. Kiva: Kiva is a P2P lender that issues loans to people globally who may struggle to get financing elsewhere. Investors can invest as little as $25 to support small businesses and families [[4]].
  3. Fundrise: Fundrise allows investors to invest in a diversified portfolio of commercial and residential real estate. The minimum investment to get started is $10 [[4]].
  4. PeerStreet: PeerStreet is a P2P lender focused on real estate. Individual investors can contribute to home offers, bridge loans, and investment property loans. The minimum investment to start is $1,000 [[4]].

Difference Between P2P Lending and Crowdfunding

P2P lending and crowdfunding are both ways to obtain funds from multiple individuals, but they work differently. P2P loans are typically based on creditworthiness and must be repaid with interest over a set loan term. On the other hand, crowdfunded funds do not have to be repaid, and crowdfunding does not involve credit checks. People donate to crowdfunding campaigns based on the service or cause they support [[5]].

Safety of P2P Loans

For borrowers, P2P loans are generally safe. P2P lending platforms act as intermediaries between investors and borrowers. However, P2P loans are not insured or protected by the government, which puts most of the risk on investors rather than borrowers [[6]].

Impact of P2P Loans on Credit Scores

Most P2P lenders have minimum credit score requirements and perform hard credit inquiries, which can cause a temporary drop in credit scores. However, there are exceptions such as crypto-backed P2P loans, which are secured by collateral and can be issued without credit checks [[6]]. Timely payments on P2P loans can positively impact credit scores, while missed payments can have a negative effect and may be reported to credit bureaus [[6]].

In conclusion, P2P loans can be a viable option for borrowers who may struggle to qualify for loans from traditional banks and lenders. When comparing P2P loan lenders, it's important to consider factors such as APR, loan terms, origination fees, prepayment penalties, minimum credit score requirements, collateral options, and loan disbursem*nt times. P2P lending also offers investment opportunities for individuals, although the number of platforms allowing individual investors has decreased in recent years.

Best Peer-to-Peer Loans of January 2024 (2024)

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