Best buy now, pay later apps
Looking for the best buy now, pay later apps? Our top picks for this kind of financing are Sezzle, Klarna, Afterpay, Perpay and Splitit.
Sandy Baker
Peer-to-peer (P2P) 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.
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 before making our top picks. For more information, read our methodology.
Our picks may be Authorized Partners who compensate us. This does not affect our recommendations or evaluations but may affect the order in which the companies appear.
Founded in 2005, Prosper is a P2P lending platform that allows individuals to borrow and lend money directly to each other. Borrowers can apply for personal loans ranging from $2,000 to $50,000, with loan terms of two to five years. Prosper offers fixed interest rates, which are determined based on the borrower's creditworthiness and other factors.
On the site, you can estimate your rate and monthly payment in under two minutes. While these terms aren’t guaranteed, they can give you a better idea if Prosper is the right choice for you. Prosper does not set credit score minimums; it does say that individuals with a credit score under 600 will have a harder time getting approved.
Prosper does not give exact fee costs but says that each loan could have between a 1% to 5% origination fee. Additionally, there is a $5 monthly check processing fee for most accounts, and if you are late on a payment, it will cost $15 or 5% of your monthly payment — whichever is the greater amount.
There are no prepayment penalties on a Prosper loan.
The top complaint against this company is that many were told they were preapproved for Prosper, but once they started the process they were denied funding. Others felt that the process was confusing and not as clear as it should be.
Funding Circle is a P2P lending platform for small- and medium-sized businesses. It offers both secured business loans and an unsecured, revolving line of credit. The company considers its business term loan to be its gold standard loan.
It is available to small businesses that have been in business for over two years and whose owners have a FICO score of 660 or more. Loans are available between $25,000 to $500,000 and have repayment terms ranging from six months to seven years.
Not all small businesses will qualify for a loan with Funding Circle, though. Funding Circle will not lend to nonprofit organizations or businesses that deal with weapons, pornography, gambling, marijuana dispensing or speculative real estate.
Funding Circle is transparent about its fees. For the business term loan, expect an origination fee between 4.49% to 8.49%, depending on your creditworthiness. It also charges a late fee of 5% of your monthly payment. It does not charge monthly processing fees, prepayment fees, application fees or servicing fees.
Peer-to-peer lending, also known as P2P lending, is a way for borrowers who need loans to connect with investors who can fund those loans. Borrowers and lenders are brought together through online platforms, also called marketplaces.
Most loans offered on P2P sites are unsecured personal loans, which are loans that require no collateral. 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.
Peer-to-peer lending has fallen out of popularity in recent years due to strict, but necessary regulations on lenders. This is the main reason why we only have two legitimate P2P lenders included on our list.
“In the early days, peer-to-peer lending held immense promise as a disruptive force in the finance industry, enabling individuals to directly lend and borrow from each other, bypassing traditional intermediaries,” said Tarek El Ali, founder at Smart Insurance Agents.
He said many challenges led to the decline of P2P popularity, including the following:
While P2P lending does still exist with a limited few lenders, we’ll be monitoring what happens to the industry in the months and years to come.
» MORE: Best ways to borrow money
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 allow you to become an investor, help fund loans and earn returns.
To obtain a P2P loan, you’ll apply on a P2P company’s website by submitting 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.
» MORE: How to get a personal loan
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.
» MORE: What is a good investment?
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.
Whether you need financing for an emergency or to fund a new business, P2P lending is not your only option. Consider these alternatives:
BNPL can be costly if you don’t repay the total amount borrowed in the promotional period, but it can be an easier way to access financing when you have poor credit. “[A BNPL company] were the first to give me a chance. My credit score was bad. But they gave me a small credit line, $250,” said one Alaskan reviewer.
The main risk to be aware of before tapping into your equity is that defaulting on your payments can put your homeownership at risk.
If you need to use a credit card for a large bill, see if you are eligible for a promotional 0% card that will give you six to 18 months to pay off your bill before the interest sets in.
Using a legitimate P2P lending company holds the same risk as receiving financing through a financial institution. Anytime you borrow money, there is a risk of defaulting on the loan and ruining your credit score. It is important to know all of the fees and terms associated with your P2P loan before agreeing to it.
The most notable difference between the two is that for P2P loans, funds come from individual investors rather than a financial institution. In some cases, P2P lending can have more flexible requirements or more competitive interest rates.
The credit score requirements for P2P loans vary depending on the platform and the specific lender. In general, however, having a good credit score can increase your chances of being approved for a P2P loan and may also result in a lower interest rate.
For the two companies we reviewed, Prosper recommends a score of 600 or more, and Funding Circle requires a FICO score of 660 or higher.
Yes, P2P lending is legal. It is regulated at the federal level by the Securities and Exchange Commission, and state securities and state banking regulators also have a part in P2P lending oversight.
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.
To make our top picks for best peer-to-peer lenders, we considered those lenders that offer peer-to-peer loans. We then compared them on features including:
Since customer feedback is a critical indicator when evaluating companies, this was an important consideration when selecting our top picks. However, for those companies on our list with no ratings on ConsumerAffairs, there were other variables that made them stand out as good options for peer-to-peer lending, and we factored those into our decisions.
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