Best peer-to-peer lending companies of February 2024 (2024)

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Best P2P lending

• Prosper: Best for co-borrowers.
• Avant: Best for poor credit.
• Happy Money: Best for credit card consolidation.
• Upstart: Best for thin credit.

Compare the best P2P lending

What is peer-to-peer lending?

Peer-to-peer lending is an alternative to traditional lending where loans are funded by individual investors rather than financial institutions like banks and credit unions. P2P loans grew in popularity following the Great Recession, which led traditional lenders to make their borrowing requirements stricter.

Since individual investors have more leeway when setting borrowing requirements than banks do, P2P loans tend to be more accessible to borrowers with fair or poor credit. P2P loans are generally unsecured personal loans that you can apply for through an online platform. Like a traditional personal loan, you can use a P2P loan to cover a variety of expenses, and you’ll typically pay it back in monthly installments over a certain number of years.

How peer-to-peer lending works

With traditional lending, borrowers will ask a financial institution — such as a bank or credit union — for money. P2P lending, on the other hand, connects borrowers directly with private investors who fund the loans and has less stringent eligibility requirements as a result.

P2P loans are typically offered through online platforms that match potential borrowers with investors. These platforms generally handle the entire lending process, such as accepting applications, determining rates, collecting fees and managing repayment — meaning you don’t usually interact with the investor or group of investors who fund your loan.

This kind of lending can be beneficial for both the borrower and the investor. “The value is [that] the borrower gets the funds they need, and the investor can get a return on their money,” says financial coach Jonathan Thomas.

How to compare peer-to-peer loan lenders

Before applying for a P2P loan, it’s important to shop around and compare offers from as many lenders as possible. Here are some key features to consider as you pick a P2P lender:

• Interest rates: Interest rates on personal loans generally range from just under 7% up to 36%, with the lowest rates typically offered to borrowers with the best credit. Your interest rate is one of the biggest factors that will impact your overall borrowing costs, so taking the time to find a good deal could save you a good deal of money in the long run.
• Loan amounts: Personal loan amounts generally range from as small as a few hundred dollars up to $100,000, depending on the lender. Consider how much you need to borrow to help you find a lender that suits your needs.
• Repayment terms: Depending on the lender, terms can range anywhere from one to seven years — or longer in some cases. Choosing a longer term will get you a lower monthly payment, but you’ll pay more in interest over time. It’s generally best to pick the shortest term you can afford to keep your interest costs low. This can also help you get a better rate, as many lenders offer lower rates on loans with shorter terms.
• Fees: Along with interest, some lenders charge additional fees on personal loans. These can include an origination fee for processing your application, late fees for missed payments or a prepayment penalty for paying your loan off ahead of schedule.
• Funding speed: If you need a loan by a certain deadline, make sure to check how long it will take to receive your funds. Depending on the lender, you could get your funds as soon as the next business day after approval. There are also some personal loan lenders that offer funding as quick as the same day, though these faster options aren’t necessarily P2P loans.
• Credit score and other requirements: If the information is available, find out what the lender requires in terms of credit score, income and other financial factors to make sure you can meet its borrowing criteria.
• Customer reviews: Check out what other borrowers have to say about their experience with the lender. Reading reviews can give you insight into the lender’s customer service and the overall borrowing experience.

How to apply for a peer-to-peer loan

The steps to apply for a P2P loan are similar to the ones you’d take for other personal loans. The specific process will vary by lender, but you’ll generally do the following:

1. Review your credit. Check your credit score to see if it meets lender requirements, and review your credit reports for any negative marks or errors. If you spot any reporting mistakes, you can submit a dispute with the appropriate credit bureau to have them removed and potentially boost your credit score.
2. Compare lenders and get pre-qualified. Many P2P lenders let you pre-qualify for a loan online. This allows you to check the rates and terms you might get approved for with only a soft credit check that won’t impact your credit score. In addition to rates, review interest rates, fees, repayment terms and other loan features to find a loan that works for you. You can also use our personal loan calculator to estimate your monthly payments and long-term costs based on different terms.
3. Choose a loan and submit an official application. After you’ve done your research, choose the P2P lender you like best. You’ll then need to fill out a formal loan application. Be prepared to provide your personal and financial details as well as any required documentation, such as tax returns or bank statements.
4. Get your funds. If you’re approved, the lender will have you sign the loan paperwork so the funds can be disbursed — typically as a direct deposit into your bank account. This could be as soon as the next business day after approval, depending on the lender.

Pros and cons of peer-to-peer lending

P2P loans can be more accessible to borrowers who don’t meet the requirements for a traditional loan. However, there are both pros and cons to consider before you take out a loan from a P2P lender.

Pros

• Flexible borrowing requirements: P2P loans can have lower credit score requirements than traditional loans, making them easier to qualify for if you have bad credit or no credit history.
• Fast application and funding process: P2P lenders often have a streamlined application and underwriting process that could lead to faster loan funding compared to a traditional lender.
• Could help your credit: If the lender reports your loan payments to the credit bureaus (most do), you could see an improvement in your credit if you make all of your payments on time.

Cons

• Potentially higher interest rates: P2P loans can be risky to investors since they might not recoup their losses if a borrower defaults. Because of this, interest rates on P2P loans can be higher than those of traditional loans — especially for borrowers with bad credit.
• Could come with higher fees: Because of the riskier nature of P2P loans for investors, they can come with higher origination fees and other charges compared to a traditional loan.
• Late or missed payments can damage your credit. As with other types of loans, making late payments or missing them completely on a P2P loan can drag down your credit score. Additionally, a P2P lender might not provide resources — such as payment plans — to help borrowers who are struggling with repayment. Instead, your account could simply be sent to a collections agency, increasing the damage to your credit.

Alternatives to peer-to-peer lending

If a P2P loan doesn’t seem right for you here are some alternatives that might be a better fit:

• Traditional personal loans: As with a P2P loan, you can use a traditional personal loan for almost any expense and pay it back over a term of several years. You can find traditional personal loans from banks, credit unions and online lenders, many of which offer both pre-qualification and fast funding.
• 0% APR credit card: Some credit cards offer a 0% APR on purchases for a period of 12 months or more to new cardholders. If you can repay your balance before that period comes to an end, you’ll essentially get an interest-free loan. However, interest rates can be high after that period comes to an end — and credit card rates are generally higher than those of personal loans. So if you can’t pay off the card in time, you could end up with hefty interest charges.
• Personal line of credit: You could also consider a personal line of credit, which is a revolving credit line that you can repeatedly draw on and pay off. A line of credit can be unsecured, or it might require you to secure it with collateral.
• Home equity loan or HELOC: Homeowners could consider tapping into their equity with a home equity loan or home equity line of credit (HELOC). A home equity loan provides a single lump sum upfront while a HELOC is a revolving credit line that can be better for variable or unpredictable expenses. Keep in mind, though, that both these options are a type of second mortgage that’s secured by your home. If you can’t make your payments, the lender can foreclose on your property.
• BNPL: If you’re looking for money to cover a big purchase, a buy now, pay later (BNPL) service could be an option. BNPL providers often don’t charge interest if you pay off the expense within a certain period of time. Longer repayment terms might also be available, but they could come with interest and fees.
• Friend or family loan: If you have a friend or family member who’s willing to lend you money, that might be preferable to taking out a formal loan. However, this could also strain your relationships if you don’t pay the loan back. Before going this route, make sure to write down your loan agreement to ensure everyone’s on the same page about repayment and any additional costs.

Frequently asked questions (FAQs)

Rebecca Safier contributed to the reporting of this story.