If you need a personal loan, you might think a bank or credit union are your only options. But these sources may have high minimum credit score or income requirements, making it harder to get a loan if you have a low credit score or limited credit history.
Peer-to-peer lending offers an alternative to traditional loan sourcing that can be a good option for both good and bad credit borrowers alike. A relatively new form of lending, online peer-to-peer platforms help aspiring borrowers connect with investors who can provide personal loans without going through a bank or credit union.
What is peer-to-peer lending?
Peer-to-peer lending is sometimes referred to by different names, including marketplace lending, P2P lending, and crowdfunding. It’s important to note that there is a distinction: Marketplace lending typically refers to platforms that offer both peer-to-peer lending and online lending via financial institutions. Crowdfunding often refers to a method in which a single party receives individual investments from multiple parties. In some contexts, these “borrowers” aren’t required to repay the loan in full, but instead, commit to other forms of repayment if their funding goal is met.
In the context of an individual or small business seeking out a personal loan through a non-bank source, peer-to-peer loans are available in various amounts, with some lenders offering from $1,000 to $25,000 or more.
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How peer-to-peer lending works
Every peer-to-peer lender has a unique process for first-time users, though most potential borrowers should follow these general steps:
- Gather relevant information. First, gather your credit information. You’ll also need to provide the exact amount you wish to borrow, as well as how you plan on spending the money.
- Research P2P lending platforms. With many new and established P2P lenders in the marketplace, it’s important to do your research to find a platform that you feel comfortable and confident using.
- Select a platform, see if you can get prequalified, and apply for the loan. Once you find a platform you want to use, you’ll need to register as a user. As a user, you’ll be able to apply for your loan amount and the platform will match you with a suitable lender. You may be able to prequalify through the platform before applying for the loan to improve your chances of lender acceptance.
- Wait for approval and funding. After you apply, wait for the lender’s approval. If approved, it will detail how much the lender is willing to invest and the terms of the loan. If you agree, the loan will be distributed according to the platform’s terms.
How to lend money with peer-to-peer lending
Similar to borrowing money, each platform will have a specific process for lenders who wish to invest. The general steps you may need to take to lend include:
- Create an account on the P2P platform you feel comfortable and confident using.
- Set the interest rate range that you’ll agree to from prospective borrowers.
- Deposit the money you wish to lend and determine a fixed term in which that money is available to borrowers.
- Receive your repayments as you lend money according to the agreed-upon terms.
Where can I get a peer-to-peer loan?
One advantage to peer-to-peer lending is that you don’t need to leave your house to find a lender. Simply go online and choose the platform that’s right for you. As with any financial decision, it’s important to gain as much information as possible before choosing a platform and lender.
Make sure you’re reading customer reviews and researching the history of the platform. It’s crucial to identify all costs, rules, and responsibilities that both borrowers and lenders assume when using the platform and entering into a loan agreement. The largest peer-to-peer lender is:
- Prosper: Prosper was founded in 2005 and offers personal loans between $2,000 and $50,000 at fixed rates and fixed terms. It offers loans with APRs as low as 6.99% for debt consolidation, vehicle purchases, household expenses, home improvement, health care financing, and other needs, except for post-secondary education.
Before you decide on a P2P loan, compare rates and terms to personal loans through traditional and online lenders.
Advertiser DisclosureOverview
Lightstream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses like home improvements or weddings. Funds are available as soon as the same day you apply, and you'll have up to 12 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans. There are no origination fees, and rates are low — Lightstream's lowest APR beats SoFi's advertised lowest APR by 1 percentage point. But you'll need good credit to qualify.
Unlike most lenders, Lightstream does not let you prequalify on its site. Nor does it provide a contact phone number next to its customer service hours on its website.
Repayment terms
2 - 12 years, depending on loan purpose
Eligibility
Available in all states except RI and VT
Time to get funds
As soon as the next business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Overview
Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
Overview
Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Eligibility
Available in all 50 states
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Overview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Overview
LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Eligibility
Available in all 50 states
Loan uses
Debt consolidation, paying off credit cards
Overview
SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Fees
Option to pay an origination fee (up to 6%) in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Overview
Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 8.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Overview
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, and WV
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Repayment terms
1 to 5 years (2 to 5 years through Credible)
Overview
It’s worth considering a personal loan through Splash if you have good credit (ideally, a FICO score above 700). The platform offers loans from a wide range of lenders, and next-day funding is available. Plus, Splash has a live chat feature so you can get real-time answers without having to wait on hold or for an email. Loans are available up to $100,000 if you apply via Splash’s website.
Rates are competitive, but borrowers with excellent credit may find lower APRs elsewhere. If you need a repayment term longer than five years, you’ll need to look elsewhere as well.
Loan amount
$5,000 - $100,000 (up to $35,000 on Credible)
Eligibility
Available in all states except VT. OH and NM net disbursed amount must be greater than $5,000. MA must be greater than $6,000
Time to get funds
Same day available, typically 1-3 days
Loan uses
Debt consolidation, home improvement, medical expenses, major purchases
Overview
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Overview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Eligibility
Available in all states except MA, MS, NV, and OH
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Overview
BHG Money stands out for offering the largest loan amounts — up to $200,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher. However, if you have a cosigner that meets these requirements, BHG will consider your application.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 2% and 4%, depending on your financial profile. Loan funds are available within three to 14 days of loan approval. Note that you can't prequalify with BHG.
Fees
Origination fees, late fees
Eligibility
Available in all states except Maryland and Illinois
Loan uses
Debt consolidation, baby (adoption), engagement ring financing, moving (relocation), business, home improvement, special occasion, cosmetic procedures, major purchase, taxes, credit card refinancing, medical expenses, vacation, wedding, other
Fees
Origination Fee, $15 Late Fee, $25 NSF Fee
Eligibility
Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories
Time to get funds
Funds typically deposited into your account in 1 business day13
Loan uses
Debt consolidation, credit card refinancing
Overview
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
Fees
Origination fee, unsuccessful payment fee, late fee
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Time to get funds
As soon as 1 to 2 days after acceptance
Loan use
All except business, and education
Is it safe to use peer-to-peer lending?
There are risks associated with all loan transactions, though many risks can be mitigated when securing a loan through a traditional financial institution. This is in part because of the regulations that banks and credit unions must follow.
Because peer-to-peer lending regulations aren’t as comprehensive, and because transaction structures may differ from P2P platform to platform, lenders and borrowers may encounter multiple risk factors.
The risks for borrowers may include:
- Not getting fully funded. Because an investor can decide how much to invest, you might be given less than the amount you need, yet still be responsible for repaying it according to the terms.
- Unnecessary hard credit checks. You’ll likely have to undergo a hard credit check, which may lower your credit score even if you’re denied.
The P2P industry is still evolving, which means certain risks may be elevated. To minimize the risk of falling for scams, you should first look to P2P platforms with a long history of lending, preferably those that also abide by federal or state regulations. Make sure you only communicate via the platform as well, and do not share your personal account information through other modes of communication that aren’t verified with the platform.
The risks for lenders include:
- Loans are unsecured: Many platforms keep their borrower information restricted from the lender, which means a lender cannot directly pursue collection efforts. If the platform seeks collections, the borrower may be able to seek bankruptcy protection.
- Many loans are not guaranteed: Many of these loans lack FDIC insurance, as well as any state or federal agency guarantees.
Pros and cons of using peer-to-peer lending
Because peer-to-peer lending is still a new practice without the same regulations as traditional lending, there are uncertainties about its advantages and risks for borrowers as well. Marketplace lending may not have the same track record to analyze that traditional lending does, but the current outcomes of this service have identified certain pros and cons that all potential borrowers should consider.
Pros
- Potentially lower interest rates: Because the loan lender is a private business or investor acting outside of a financial institution, they may be able to extend lower interest rates to certain borrowers depending on their requested amount and other relevant data.
- Potentially lower fees: Similar to interest rates, the lender offering the loan may have more freedom to dictate which fees they charge. For example, if a peer-to-peer platform helps facilitate loan applications and processing, the lender may charge a lower fee because of the reduced loan origination cost.
Cons
- Some platforms allow lenders to set interest rates: A lender may choose to set a higher-than-average interest rate. This could be a financial challenge for borrowers who cannot qualify for a bank loan and believes peer-to-peer lending is their only option.
- Small-business owners may need to provide their credit score: If the P2P platform cannot make loans directly to small businesses, the owner may need to provide their credit score, which could negatively impact their credit report.
What fees come with peer-to-peer lending?
Just as you should expect fees when borrowing from a brick-and-mortar or online financial institution, it’s likely that most peer-to-peer lending services will charge fees to the borrower. These may include origination fees, late payment fees, or even early payoff penalty fees.
Keep in mind that potential fees may vary from lender to lender or platform to platform. There’s also a chance that new fees will present themselves as peer-to-peer lending evolves in the industry. When comparing costs associated with peer-to-peer lending, make sure you’re looking at both the interest rates and all fees charged to determine which will come at the lowest expense to you.
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Meet the expert:
Nick Dauk
Nick Dauk is a Credible authority on personal finance. His work has been featured in Business Insider, The Edge, Bisnow, The Telegraph, BBC, and Culture Trip.
