Best Peer to Peer LendingPeer-to-peer lending is unique because it offers great benefits for both the borrower and those investing in the loan. This non-traditional form of lending is simple to do and can yield great results. The top two providers in 2013 facilitated the lending of 2.4 billion loans.
To begin, you'll want to find a reputable peer-to-peer lender. Next, you can fill out the simple credit application on the website. From there, the service will compile your information based on your credit score, employment and other factors to determine if you are a good investment. If you are, they offer you financing.
Unlike traditional lenders where you have a bank or credit union investing in the loan, peer-to-peer lending gives anyone the opportunity to invest in your loan. This means when you borrow, it could be a group made up of individuals and businesses investing in you. Then, similar to a regular loan, you have payments deducted from your bank account until you repay it.
Peer-to-Peer Loans: What to Consider
This method delivers excellent benefits, if you need to borrow money. Here are just some of the many benefits you'll receive with this type of financing:
- A simple application process that might take you only minutes to finish.
- If you qualify, you could receive a competitive interest rate, making it a good alternative to high interest loans and credit cards.
- You will also have flexible repayment terms that make the loan more manageable for your finances.
Borrowing is only a part of the equation though. If you are looking to invest, peer-to-peer lending is a great option to consider for the following reasons:
- With this option, you receive a monthly cash flow. This can help you recoup your initial investment quicker.
- You can also receive great returns when you invest in a borrower. The rates will vary depending on loan terms for the borrower, but in any regard it does still yield a healthy rate of return.
- Many services also allow you to rollover your earnings into your retirement accounts.
Before borrowing or investing, it's important to examine the services offered online. For borrowers, you'll want to pay keen attention to the website's reputation by researching it with the Better Business Bureau. This can help you identify if other customers have experienced issues with the service and if so, what those problems were.
Along with reputation, you'll want to analyze fees. Some services will charge you to setup an account to invest in borrowers. In addition, pay attention to the range of interest rates offered to borrowers. The higher the interest rate, the more expensive the loan will be, which can create a risker situation for both the borrower and those investing in them.
Meet the Best Peer to Peer Lending Companies
- Customer service available seven days a week
- Simple application process
- Weighs income and employment more than credit histories
- Excellent customer service evidenced by A+ rating with BBB
- Residency requirements means limited options for residents of TN or OH
SoFi, which is also known as Social Finance, is an online lender that offers a variety loans. The company has facilitated $1.75 billion in loans since 2011. Borrowers can expect an annual rate between 5.5% and 9.0% depending on their credit worthiness, loan type and term. Sofi requires that its investors be accredited in order to participate as a lender and invest a minimum of $10,000. The company also accepts foreign investors. For borrowers, loans ranging from $10,000 to $65,000 are available. Sofi requires that its borrowers be a graduate of a Title IV accredited university or graduate program. In addition, borrowers must be or have an offer of employment in order to be eligible for a loan. With just 13,500 borrowers, Sofi's lends to fewer borrowers than most of its competitors. While those numbers could suggest that Sofi is a less established lender, the company provides excellent service. Sofi's unemployment protection is the best example of this. If you were to lose your job while paying off your loan, Sofi will put your payments on hold until you find a new job. Sofi even helps borrowers find a new job with its reemployment assistance program for its newly unemployed members.
- Quick and easy approval process
- Few extra fees
- Affordable rates for good credit
- soft credit checks
- Steep origination fee
Lending Club is a peer-to-peer lending platform that connects borrowers to a network of investors for a variety of loan types. One of the most popular uses for a loan through lending club is debt consolidation. Since it’s founding in 2007, it has helped to finance $13 billion in peer-to-peer loans. They boast a quick and easy application process, affordable rates for good credit scores and they only perform an soft credit pull during the initial application process.
- Receive approval in as little as 2 minutes
- Unique underwriting process that takes into account field of study and job history
- Excellent customer service that’s available to you seven days a week
- Flexible repayment options that include free automa
- High loan origination fees
Launched in 2014, Upstart has already originated more than $220 million in loans. While most lenders lean heavily on FICO credit scores, Upstart evaluates earning potential in determining the likelihood that a borrower will be able to repay their debt. Upstart developed an algorithm which factors, school, academic performance, standardized test scores and major in order to get a grasp on ability to repay. While the majority of Upstart's borrowers are recent graduates, about 30 percent of its borrowers are over the age of 30. Upstart's algorithm has also determined that young borrowers, even those with mediocre credit, are typically more likely to repay than older borrowers, which is good news for recent grads in need of funds. Upstart offers loans ranging from $3,000 to $25,000. Borrowers can expect an annual percentage rate between 6.5% and 24.6%. Again, investors must be accredited but Upstart requires just $100 to begin.
- Flexible loan options for a wide variety of purposes
- Low fixed interest rates for qualified borrowers
- As low as 640 FICO accepted
- High loan origination fees
Founded in 2006, Propser is the largest peer-to-peer lending service with about 1.25 million members and 350,000,000 funded loans. Prosper offers loans for a variety of purposes including debt consolidation, home improvement, business, auto and much more. Loans funded through Prosper range from $2,000 to $25,000. Interest rates range from 6.59% for those with excellent credit to 35.94% APR. Prosper's application process is fairly simple as well. Prosper creates a profile for each borrower based on their credit history, income, expenses and payment history. A credit score of 640 is required for new borrowers, however, a 600 score is allowed for existing borrowers. A true bonus for borrowers is that there is no prepayment penalty if the loan is paid off before the agreed upon term. Like PeerForm, investors are allowed to select whom they invest in with Prosper. However, Prosper does have a quick invest system which allows lenders to set certain criteria and allow the site to select the best loans based on that criteria.
- 15-day grace period for loan repayment monthly
- Flexible loan rates and amounts for a wide variety of purposes
- Loan terms of three to five years mean higher monthly payments
- High origination fees
CircleBack is another good option for borrowers that offers loans for a variety of options. CircleBack offers loans that range from $3,100 to $35,000. CircleBack's repayment length is fairly typical and ranges from three to five years. However, CircleBack requires a minimum credit score of 660, which is a bit higher than its competitors. Interest rates range from 6.63% to 36% APR. While CircleBack does not offer smaller loans or flexible repayment term lengths, there are no prepayment penalties. Once a borrower's credit history has been pulled, the borrower must then accept the amount, interest and length of their respective loan. Once accepted, investors are allowed to review and fund the loan. Once the loan is funded, the funds are deposited directly into the borrower's bank account.
Peer-to-Peer Lending Advice
While peer-to-peer lending is an appealing option for many, especially those paying off student loans, mortgages or consolidate debt, there are a few things to keep in mind. The first thing is that while most peer-to-peer lenders do not require high credit scores, you do need a decent credit history for the most part. Most lenders require a minimum score of 640, however, as mentioned earlier, Peerform does accept scores as low as 600. Peerform is an exception though as it analyzes a variety of other factors using its loan analyzer algorithm.
If your credit is less than stellar, the best option for borrowers may be to spend some time raising your credit score before submitting an application. This can be accomplished by paying off any existing debts and delinquencies and checking your credit report to ensure there are no discrepancies you are unaware of. Keeping your credit card balances on the low end, preferably less than 30% of the credit limit will help your score great deal as well.
If waiting isn't an option and you're in need of funds immediately, submitting an application with less than stellar credit could still net you an approval. It certainly is preferable to applying for payday Loans which have interest rates that sometimes exceed 500 percent, especially because your credit score is often not the only factor in determining approval. Lenders like Upstart consider your degree, concentration and earning potential when coming to a determination. So it is possible that someone with a mediocre credit score but solid career prospects would be approved for a loan.
And if you are approved for a loan, there are many benefits for borrowers. Speedy service is among the primary benefits of peer-to-peer borrowing. PeerForm, for example, attempts to fund and deposit your loan request within 14 days. This is crucial for those who need money fast following an emergency or unexpected life event. The fact that these lenders operate entirely electronically is what makes the process fast. Whereas traditional banks typically require some paperwork and mail you a check, peer-to-peer borrowers and investors complete the entire process online and the funds are deposited directly to your bank account once available.
Relatively low interest rates are another benefit of peer-to-peer lending. While, depending on your credit, the rates may sometimes be higher than the rate you would receive from a bank, you can get a good rate without putting something up as collateral. Banks typically request that borrowers put anything up from their home, car, fine jewelry and more as collateral in order to receive a low interest rate. With peer-to-peer lending, collateral is never requested.
And as mentioned above, a number of peer-to-peer lenders do not charge prepayment penalties if a borrower decides to pay his or her balance ahead of schedule. CircleBack and Prosper are two examples of lenders who don't charge prepayment penalties.
However, one of the greatest benefits to peer-to-peer lending is that many of them offer unemployment protection. Sofi, as mentioned earlier, provides such unemployment protection by postponing your payments until you find new employment. Sofi will even help you find a new job too. For anyone with uncertainty in the workplace and in need of financial help will want to consider a lender like Sofi.
Overall, peer-to-peer lending offers many substantial benefits. For borrowers, you might be able to obtain financing that can help you pay off old debt, invest in a new business or buy a high ticket item with an interest rate less than traditional banks offer. For investors, you can fund loans for borrowers and receive a monthly cash flow, which you can use to reinvest, pocket or rollover into a retirement account.