Best peer-to-peer lenders

Peer-to-peer (P2P) lending, also called social lending, uses a marketplace platform to connect borrowers with investors who fund unsecured loans. For individuals and small businesses, P2P lending is sometimes a cheaper and more accessible alternative to borrowing from traditional sources like banks and credit unions.

We looked at some of the top P2P lending options available to help you choose the right one for you.

Compare top peer-to-peer lending sites

When you’re choosing a P2P lending marketplace, it’s crucial to find one that has a good reputation and is simple to use. We looked at online reputation, availability, and rates and fees when selecting our top picks. For more information, read our methodology.

Peerform, started in 2010, helps you find unsecured loans for debt consolidation, home improvement, a wedding, medical expenses, moving, auto financing and more. It takes a few minutes to register and see your rate, with no effect on your credit score. Peerform shows you a list of offers you qualify for, and the loan inquiry is listed on the platform for investors to evaluate.

Loan funds are deposited within three business days of final approval. You can then make automatic monthly payments or pay by check each month. There are no prepayment penalties.

Prosper has helped arrange $20 billion in loans for more than 1.2 million people since it was founded in 2005, and it handles servicing for all its loans. To qualify, you need a FICO Score of at least 640 and a debt-to-income ratio of no more than 50%.

You can start by getting a loan estimate for your rate and monthly payment, which takes less than two minutes and doesn’t require a hard credit check. Prosper shows you loan offers with fixed rates and three- and five-year terms. After you accept an offer, you get a direct deposit of the funds as soon as the next business day.

Prosper has mostly positive reviews on ConsumerAffairs, with many borrowers saying the process is simple.

“It only took about half of a day, and I received the communication from Prosper that my loan had been funded,” a reviewer from Illinois said. “They seriously could not make it any easier.”

Upstart is an artificial intelligence-based online platform that specializes in fully automated loans with no human involvement. It offers loans for a variety of purposes, including auto loan refinancing, with rates starting as low as 3.09%. Upstart has no minimum credit score and even accepts applicants with insufficient credit history to produce a score.

Upstart shows you your rate in just minutes with only a soft credit inquiry. Most loans are funded within one business day of signing the loan agreement. There are no prepayment penalties.

Kiva is a nonprofit that raises capital for small businesses and entrepreneurs through crowdfunding. Over 4 million borrowers in 76 countries have accessed loans through Kiva. Borrowers in the U.S. can get up to $15,000 and pay 0% interest and no fees.

Kiva uses a different process from other lenders. Instead of examining your credit score and income, the company uses social underwriting, asking you first to prove your creditworthiness by recruiting family members and friends as lenders. You can then go public to raise funds through Kiva’s network of 1.6 million lenders worldwide. Loan terms last up to 36 months.

What is peer-to-peer lending?

Peer-to-peer lending connects borrowers who need loans with investors who can fund those loans. Borrowers and lenders are brought together through online platforms, also called marketplaces.

Borrowers may choose peer-to-peer lending over traditional lenders because of the ease of applying, more flexible lending requirements and fast funding.

Most loans offered on P2P sites are unsecured personal loans. These loans can be used for a variety of purposes, including debt consolidation, medical expenses, weddings and other big purchases. Some P2P platforms also help borrowers find secured loans for auto refinancing and business loans.

How peer-to-peer lending works

From a borrower's perspective, using a peer-to-peer lender marketplace is similar to applying for a loan with a bank, credit union or online lender. The application process requires many of the same documents and information. P2P lenders also give you an opportunity to become an investor, help fund loans and earn returns.

Borrowing money with a P2P service

You apply on a P2P company’s website by giving information like your name, date of birth, address, email address, phone number, Social Security number, income, monthly rent or mortgage payment and how you plan to use the funds. The company runs a soft credit check to show you offers.

From there, you choose the offer you want. The company then runs a hard credit inquiry to formally approve you for the loan. It may also require additional documentation. At this point, the P2P company looks for an investor or multiple investors to fund your loan. Once this process is complete, you’ll sign for the loan and get delivery of funds quickly — usually within one to three business days.

Investing with a P2P service

Each company’s process for approving investors is different. You'll likely have to create an account, which you’ll use to manage funds and select investments.

Once you’re approved as an investor, you can choose the loans you want to fund. Some companies assign grades to loans so the investor is aware of the risks involved. As a borrower makes payments back on a loan, the P2P company allocates a portion to you based on your investment.

Pros and cons of peer-to-peer lending

While applying for a P2P loan is similar to applying for a personal loan with a bank, credit union or online lender, there are some key differences to consider if you’re interested in working with a peer-to-peer lender.

Benefits of peer-to-peer lending

One of the biggest benefits of using a peer-to-peer lending service is the flexibility it offers if you have a lower credit score. Borrowers who left reviews about P2P lenders on ConsumerAffairs have also mentioned quick funding as a positive — one LendingTree customer in Illinois said they “received the loan quicker than expected.” Some of the biggest positives are:

• Loan opportunities for those with lower credit scores: P2P lending gives those with fair or good credit the opportunity to borrow money. Investors can decide whether to fund the loan, with some willing to take the risk in order to help a borrower.
• Convenient online application: P2P platforms usually have quick and convenient online applications; you answer a few questions and receive loan options in a matter of minutes.
• Fast funding: A big draw of P2P lending is the ability to receive funds quickly. Some lenders have a 24-hour turnaround time from approval to funds transfer.
• No prepayment penalties: Most P2P lenders do not charge any penalty for paying off your loan early. Paying off your loan ahead of the maturity date saves you money on interest.

What to consider

There are some drawbacks to P2P lending. Be sure to read the terms of your loan carefully before signing any agreement. Some of the most common issues to consider:

• High origination fees: Many P2P lenders charge a loan origination fee that’s as high as 8% of your loan amount. This fee may be higher than the origination fee on a personal loan through a bank or credit union.
• Limited loan term options: Most of the loan terms offered with P2P lenders are either three years or five years. If you need a longer repayment period, you’ll need to look into other loan options.
• High maximum APRs: Borrowers with lower credit scores may be approved for these loans, but it’s likely they’ll pay very high rates — sometimes higher than with a bank or credit union.
• Co-signer restrictions: Having a co-signer on your loan typically helps boost your chances of approval, but some P2P loans don't allow co-signers or co-borrowers. This can make it more difficult for those with below-average credit to qualify on their own.

Bottom line: Is P2P right for me?

P2P lending is an appealing choice for some borrowers because of the fast and convenient application and funding process. The borrowing requirements are sometimes less strict than with traditional lenders, so you may want to explore P2P options if you have a lower credit score. Even if you have a good credit history, it's in your best interest to gather multiple loan quotes — including from P2P lenders — so you can find the best deal. Most P2P sites allow you to check offers without any effect on your credit score.

Methodology

The ConsumerAffairs Research Team chose our top four peer-to-peer lender picks by comparing 12 popular companies on online reputation, rate transparency and availability of lending services.

• Online reputation: We compared ratings and reviews on our site and across the internet, including on Trustpilot. We also checked in with the Better Business Bureau for government actions related to marketplace misconduct within the last year.
• Rates and fees: We only picked lenders that cap APRs at 35.99%, and we gave preference to lenders with lower ranges, lower origination fees and no prepayment penalties. We also gave preference to companies with clear rates and plenty of easy-to-access information about fees.
• Availability: We confirmed that all of our picks for peer-to-peer lenders are currently available to borrowers and investors in the U.S. We also eliminated lead generators and companies that are only licensed in a few states.