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 Disbursement: 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 disbursement.

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 enthusiast and expert in the field of peer-to-peer lending, I bring to the table a comprehensive understanding of the dynamics involved in this alternative financial ecosystem. With a depth of knowledge gained through hands-on experience, I aim to shed light on the key concepts discussed in the article "Guide to Choosing the Best Peer-to-Peer Lending Websites."

Peer-to-Peer Lending Overview: Peer-to-peer lending serves as a valuable alternative for borrowers who may face challenges in qualifying for loans from traditional banks. This includes individuals launching small businesses, often ineligible for traditional business loans. P2P lenders offer more relaxed borrower requirements, increasing the likelihood of loan qualification. However, it's crucial to note that P2P loans may come with higher-than-average interest rates and additional fees.

Factors to Consider When Comparing P2P Loan Lenders:

  1. APR (Annual Percentage Rate): The total cost of borrowing, including interest rates and fees, determines the APR. It varies based on credit score, income, debt history, and loan term.
  2. Loan Terms: The duration for repaying the loan, influencing monthly payments, interest rates, and overall repayment costs.
  3. Origination Fees: Some lenders charge fees as a percentage of the loan amount.
  4. Prepayment Penalties: Fees imposed if the borrower pays off the loan earlier than agreed.
  5. Minimum Credit Score: The credit score required for loan qualification, typically around 600 for P2P lenders.
  6. Collateral: Some lenders offer secured loans, using property as collateral to increase approval odds and secure better rates.
  7. Loan Disbursement: Variability in the time it takes for lenders to disburse loans, ranging from next business day to several days.

Applying for a Peer-to-Peer Loan: Most P2P lenders provide pre-qualification tools allowing borrowers to check eligibility without affecting credit scores. The application process involves submitting personal information, with lenders conducting a hard credit inquiry. Once approved, the lender assigns a risk category and presents the information to its investor platform for funding, often facilitated by institutional investors.

Investing and Making Money with P2P Loans: While P2P lending was once a lucrative option for individual investors, fewer platforms now allow this. Prosper is among the few, with a minimum investment of $25. Other options include Kiva, Fundrise, and PeerStreet, each catering to specific investment preferences.

Distinguishing P2P from Crowdfunding: P2P loans and crowdfunding both involve obtaining funds from multiple individuals, but they operate differently. P2P loans are credit-based and require repayment with interest, while crowdfunded funds don't require repayment, relying on donations for specific causes or services.

Regulatory Changes and P2P Lenders: Previously exempt from certain regulations, P2P loans are now labeled as securities by the SEC, leading to increased regulatory scrutiny. Many P2P lenders have shifted away from individual investors, focusing on institutional investors to comply with federal securities laws.

Comparing P2P Loans with Payday Loans: While P2P loans may have higher interest rates, they remain significantly less expensive than payday loans. P2P loans are considered safer for borrowers, with interest rates reaching up to 35.99%, considerably lower than the exorbitant APRs associated with payday loans.

Impact on Credit Score: Most P2P lenders conduct hard credit inquiries, affecting credit scores. However, crypto-backed P2P loans, secured by collateral, may be issued without credit checks. Timely payments contribute positively to the borrower's credit, but falling behind can lead to negative consequences.

Final Verdict and Recommendations: Despite a decrease in the number of P2P lenders, they remain useful for eligible borrowers, especially those struggling to qualify for traditional loans. Prosper is highlighted as the best overall P2P lender, considering loan amounts and relatively low credit requirements. However, individual preferences and financial situations may lead borrowers to explore alternative lenders or funding avenues, such as crowdfunding or traditional loans.

Selection Criteria for the Best P2P Lenders: The article outlines a meticulous evaluation process involving 38 lenders and 1,520 data points. Criteria such as membership requirements, average fixed APR, and average origination fees were weighed, with a focus on factors impacting potential borrowers. The flexibility of repayment terms, prequalification features, and co-signer options were also considered to ensure borrowers have the best possible experience.

In conclusion, peer-to-peer lending presents a viable financial alternative with its unique advantages and considerations, and thorough evaluation is essential for both borrowers and investors.

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


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