Finance
Loans
Best Personal Loans
Best peer-to-peer lenders

Best peer-to-peer lenders

P2P connects borrowers with investors

Written by

Edited by

Updated: 08/24/2023

Find Personal Loans near you

Learn about personal loans

man looking for a peer to peer lender on his phone

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.

Compare our top 2 peer-to-peer lenders

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.

Prosper

CA user rating:3.8
Loan range: $2,000 to $50,000
Loan term: Two to five years
Origination fee: 1% to 5%

Learn More

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.

What we like

A few highlights of Prosper include the following:

No prepayment penalty
High borrowing limit

What to consider

Before choosing Prosper, consider these possible drawbacks:

Not for those with low credit scores
High fees

What reviewers say

Many chose Prosper because the process was easy and everything could be done quickly online. One Illinois reviewer shared that it only took half a day to get approved for funding and their credit score wasn’t affected. “Once you submit the form, it somehow looks at your credit ‘picture’ without actually pulling a credit report, and therefore not leaving an inquiry on your credit report,” the reviewer said.

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

CA user rating:Not enough reviews
Loan range: $25,000 to $500,000
Loan term: Six months to seven years
Origination fee: 4.49% to 8.49%

Learn More

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.

What we like

The notable features we like from Funding Circle include:

Funding within 48 hours
No application fee or prepayment fees

What to consider

Before turning to Funding Circle for your small business loan, consider the following:

All loans are secured
Not all businesses qualify

What reviewers say

There are currently no reviews from ConsumerAffairs readers for Funding Circle.

What is peer-to-peer lending?

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.

The future of peer-to-peer lending

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:

Regulatory hurdles
Raised concerns about investor protection and transparency
Issues related to credit quality and default rates
The lack of a centralized secondary market for trading these loans

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

How P2P 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 allow you to become an investor, help fund loans and earn returns.

Borrowing money with P2P

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

Investing with P2P

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?

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.

Pros

Available to those with lower credit scores
Convenient online application
Faster funding than many traditional loans
No prepayment penalties

Cons

High origination fees
Limited loan term options
High maximum APRs
Co-signer restrictions

Alternatives to P2P lending

Whether you need financing for an emergency or to fund a new business, P2P lending is not your only option. Consider these alternatives:

Crowdfunding: Crowdfunding sites allow you to raise funds from a large number of individuals either for personal expenses or for a business venture. One Virginia reviewer was able to secure $11,000 through crowdfunding, minus the fees. They said, “I started receiving funds the very next day.” Each site will have different fees and restrictions, so make sure to research the companies before choosing.
Buy now, pay later: Buy now, pay later (BNPL) is a payment option that allows consumers to pay for purchases in installments over time. Typically these are offered through merchants directly, though some companies will allow you to access funds for medical or veterinarian bills.
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.
Personal loans: Personal loans can be used for a variety of purposes, from consolidating debt to funding a home renovation project. Depending on the lender, credit score and income requirements can be stricter than with P2P lenders. One reviewer from New Jersey was able to get a good interest rate with a bank versus P2P lenders. They said: “I got a 50k personal loan and was funded in less than three business days. My FICO score was good but not excellent.”
» MORE: How to get a personal loan with bad credit
HELOC/home equity loans: A home equity line of credit (HELOC) or a home equity loan can be a good option for borrowers who need to borrow a large amount of money at a low interest rate, using home equity as collateral. It can be helpful to have a line of credit for unpredictable home renovation projects.
The main risk to be aware of before tapping into your equity is that defaulting on your payments can put your homeownership at risk.
Credit cards: Credit cards can be helpful in a financial pinch, but most come with high annual percentage rates (APRs), and it can be hard to escape debt if you are only paying the minimum monthly bill. One Wisconsin reviewer was out of luck with their credit card bill when they fell into financial hardship. The credit card company told them it couldn’t offer a lower monthly payment amount and ended up filing a small claims case against them.
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.

FAQ

Is peer-to-peer lending safe?

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.

How is P2P lending different from a traditional personal loan?

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.

Do I need a good credit score to get a P2P loan?

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.

Is peer-to-peer lending legal?

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.

Bottom line

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

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:

Online reputation: We compared ratings and user reviews from a variety of sites, including ConsumerAffairs. We also reviewed for government or legal actions related to marketplace misconduct within the last three years.
Rates and fees: We gave preference to lenders with lower minimum loan amounts, lower origination fees and no prepayment penalties. We also gave preference to companies with clear rates and easy-to-access information about fees.
Availability: We confirmed that all of our picks for peer-to-peer lenders are currently available and accepting applications, and eliminated lead generators or companies that are only licensed in a few states.

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.

Did you find this article helpful? |

Share this article