If you’ve been looking at various forms of finance, chances are you’ve come across peer to peer lending. It’s a relatively new form of finance that helps connect consumers with one another. Instead of borrowing from a lender, you’re actually borrowing from other consumers. People are able to invest money into peer to peer lending with the hope of making a return on their money.
If it sounds confusing, that’s because it is. This is a financial product that has grown in popularity, but still has a lot of confusion surrounding it. That’s why we’ve created this comprehensive guide to peer to peer lending. If you want more information on this type of borrowing, this will be your best resource.
Make sure that you assess all the information in this article before you decide to work with a peer to peer lender. As with any financial decision, it’s important that you fully understand the ramifications before you make any decisions. This article is sure to provide you with answers to any question you may have about peer to peer lending.
The peer to peer lending industry is a technologically driven marketplace. Previously, it would have been impossible to track and ensure that lenders were able to get their money back. Technology has allowed for lenders to meet with borrowers through online platforms. This is another step in the finance revolution that appears to be testing the strength of the traditional financial industry.
A wave of apps and peer to peer based systems have popped up to help reduce costs and increase transparency in an assortment of different fields. These advancements have targeted a range of different fields including borrowing, stock trading, and investments.
Why Is Peer to Peer Lending So Popular?
Peer to peer lending has grown increasingly popular in recent years. A lot of this comes down to how easy it is to obtain peer to peer loans. In this section, we will outline some of the primary reasons that borrowers find peer to peer loans so great. Check out the top reasons below.
No Credit Check
Many peer to peer lenders will not require you to have a credit check, which means that you won’t have to damage your credit score to apply for a loan. In addition, if you have a poor credit history, you’ll still qualify to have your loan approved. This is great for people who are trying to get their foot on the financial ladder.
Most peer to peer lenders are online. This means that the application happens entirely through an online portal. You won’t have to go into a bank branch and fill in a long application. This helps the entire process become less stressful. One of the worst parts about applying for finance is how long the application can take, so peer to peer lending is a good option for those who are trying to avoid this.
Many peer to peer lenders provide people with instant approval. This means that you won’t have to wait days or weeks to find out if you’ve been approved for a loan. It can be extremely painful to have to wait for financing, especially if you need money quickly. That’s why this type of loan is perfect for those who have a tight schedule.
Depending on the platform, you can typically have the money transferred into your account extremely quickly. It’s a great way to get quick cash if you have the ability to do so. You should be looking to work with a peer to peer lending service that has the ability to make electronic transfers. This will mean that you can sometimes access the money within 24 hours of approval.
Who Provides Peer to Peer Loans?
Peer to peer loans are provided by other consumers. These consumers are actually investors in a platform. They want to put up money with the chance of being able to make a fairly significant return. The process is very risky, as people don’t have any way of ensuring that you will pay them back. Remember, peer to peer loans are typically unsecured.
Can I Trust Peer to Peer Platforms?
Yes, for the most part. You need to make sure that you’re working with a peer to peer platform that is well known and has a longstanding reputation. You don’t want to work with a platform that doesn’t provide you with the security that you’re looking for. The best way to make sure that you’re working with a good peer to peer lending platform is to head online to various consumer watchdog groups and check for yourself.
You can check on Consumer Affairs and the Better Business Bureau to make sure that you’re working with a reputable company. You don’t want to work with a firm that has a poor business record. If you do find that a company has bad reviews, you’ll want to avoid them at all costs. Reputation is more important than you think. You don’t want to work with a lending platform that has hidden fees or poor customer service. It could end up impacting your financial health.
Advantages of Peer to Peer Lending
There are many advantages to peer to peer lending, but it can sometimes be hard to assess these advantages from an easy to understand viewpoint. That’s why it’s often helpful to view concise information that doesn’t take long to consume. We’ve created this section to help you better understand the benefits of peer to peer lending.
- Quick – The entire process is extremely quick, you won’t have to worry about doing lengthy applications or waiting weeks for money to get into your bank account. If you’re looking to get the money you need quickly, this is one of the quickest ways to do so.
- Unsecured – You won’t have to secure your loan against the value of any of your assets, this means that the loan is extremely good for those who don’t want to risk their financial wellbeing. You don’t want to put your family home or car at risk of repossession.
- No Credit Check – If you have bad credit, or you don’t want your credit report to take a ding when you apply for a loan, peer to peer lending is typically a good option for you. There are many peer-to-peer lenders that don’t require any credit checks.
- Don’t Have to Use Traditional Lenders – Many people have had bad experiences with traditional lenders, and tend to want to avoid them at all costs. If this is the case for you, you’ll most likely find it pleasant to work with a peer to peer based lending system. It’s much more enjoyable for many people.
- Access to Cash – Unlike other forms of finance, such as credit cards or credit lines, you’ll find that you have access to cash without any additional fees. Money is deposited directly into your account, which means that you won’t have to worry about paying cash advances or other fees when you want cash.
Disadvantages of Peer to Peer Lending
While there are plenty of obvious advantages to working with a peer to peer lender, there are still some major drawbacks that are worth considering. Remember, it’s important to consider both the good and the bad when you’re trying to decide on a type of finance to obtain. You don’t want to blindly follow an option because the benefits appear strong.
- Low Lending Limits – You’ll find that peer to peer lenders don’t offer great lending limits. This is because they don’t want to expose themselves to high risk. The reality is that an unsecured loan with no credit check won’t be able to be for a very large amount – you’ll most definitely be restricted to small amounts in the beginning.
- High Interest Rates – Because of the amount of risk involved for investors, and the short-term nature of the loan, high interest rates are typically associated with peer to peer lending. For this reason, you should make sure that you can afford the interest payment prior to making any commitments.
- Short Terms – Another disadvantage with this form of loan is that the term times are extremely short. This means that you won’t have much time to pay back the loan. It also means that payments can be quite high.
As you can tell, peer to peer lending is a great fit for a lot of people, especially those who need a small amount of money quickly. But at the same time, peer to peer lending isn’t for everyone. There are plenty of people who will find the interest rates too high, or the term times to short. There will also be borrowers that are looking to borrow significantly more money. Either way, you’re probably wondering what some healthy alternatives are. We’ve outlined some of the top ones below.
Online Personal Loans
Online personal loans are similar to peer to peer loans in that the process is extremely quick. You can apply through the internet and have money in your account within 24 hours. The only major difference is that you will have to have your credit report checked – some lenders may have high requirements for borrowers. The one upside is that you will definitely be able to get higher loan amounts than with peer to peer lenders.
Credit cards can also be a quick way to access capital. They tend to be easier to apply for than other types of finance. You’ll be able to complete the entire application process online, which is a great way to make sure that you get the money that you need quickly. You can typically get a credit card overnighted to you, which means you can have the card in about two days. The only downside to this method is that you don’t get access to cash without paying expensive cash advance fees.
As you can see, peer to peer lending is a unique way to get money without having to have the qualifications you may need for a traditional loan. It also allows for you to get access to cash quickly. If you want to get a loan, but you don’t want to have your credit checked, then a peer to peer loan is one of your only options. Fortunately, there are a variety of providers to choose from – the industry is well and truly booming!
For those who want a bit of guidance on lenders, we also provide suggestions on who to work with. We enjoy giving our readers a leg up when it comes to choosing a lender for their financing. We don’t want you to be stuck working with a subpar lender. Head to our homepage to see who we recommend.
Remember, it’s important to make sure that you are borrowing money responsibly. If you don’t, you may find that you end up in a debt trap that is hard to get out of. This is especially true for peer to peer loans; their interest rates are quite high. And while the loans are mostly unsecured, you’ll find that you end up paying a heavy price when your credit score is destroyed. It will ruin your chance of obtaining finance in the future, as well as result in you being offered higher interest rates.
If you have any more questions about personal loans, or any other form of personal finance, make sure to check out the other resources on our site. We have information on any topic imaginable.
General Questions About Peer to Peer Loans
Peer to peer lending has exploded in the last few years. There are many reasons for this: the economy continues to struggle and millions of Americans do not qualify for traditional bank loans, it’s a great passive investment, and it’s fast and easy to use for both borrowers and lenders. Although peer to peer loans are more popular now than ever, it is still a new concept for many.
What is a peer to peer loan?
Peer to peer loans, or P2P loans, are unique in that they are offered strictly through online services that connect individual or business lenders with consumers who are searching for a loan. The lenders are vetted prior to allowing them access to consumer information.
How to get loan peer to peer for business?
Almost all peer to peer lending sites offer loans for beginning or established businesses. You can find peer to peer lending sites online, where you’ll complete a short questionnaire about your loan needs. You will then be connected to lenders that can provide the financing you are searching for.
What is a P2P loan?
A P2P loan is also known as a peer to peer loan. These are online opportunities where a third party connects the consumer who needs a loan with individual and/or company lenders who are willing to finance the loan. Both the borrower and the lender are vetted to minimize the risks for lenders.
What are peer loans?
A peer loan is one you can get online from individuals or organizational lenders. Lenders have the opportunity to fund your loan request, and you can compare offers to find the best deal for your financial situation.
Where to get true peer to peer loans?
There are many places you can go online to find true, legitimate peer to peer loans. Most peer to peer lending sites have a proven record of success, and this type of lending continues to grow exponentially as both lenders and consumers reap the benefits.
How much do P2P loans make in interest?
It depends. P2P, or peer to peer, loan interest varies depending on the credit score and financial situation of the customer requesting the loan. Most P2P loans make about 8-10% interest at a minimum.
How to find peer to peer loans?
If you are looking for a peer to peer loan, you can find a few different websites online that are reputable companies you have probably heard of before. You will fill out some basic information, and then your loan will be made available for different lenders to fund.
Why choose a peer to peer loan?
When it comes to peer to peer loans (or P2P loans), there are many advantages over applying for a traditional bank loan. Peer to peer loans are flexible, and allow you to decide between multiple options so you can find the lender that suits your needs. It is all done online, and you receive the money usually within 1-3 business days.
Why have the number of P2P loans gone down?
Some states have prohibited the use of peer to peer (or P2P) loans to prevent predatory lending practices. Since peer to peer loans are used by people with low credit scores, they do tend to come with high interest rates, which may cause some users to default on their loan.
How do peer to peer loans secure your loans?
Peer to peer loans are typically unsecured, so you aren’t putting up any collateral to secure the loan. Because these loans are unsecured, they do come with higher interest rates and annual percentage rates (APR) than a secured loan, such as a home equity loan.
How find the Best Peer to Peer Loan for You
One of the great benefits of a P2P loan is the much less stringent eligibility requirements when compared to traditional lending and borrowing. You typically need a credit score of at least 660, but there are no set income requirements. You’ll want to find a lending site that meets your needs. There are many different offers for people with little or no credit, students, for those who have a lower credit score.
Peer loans - what to know?
Peer loans are also known as peer to peer or P2P loans. This is a relatively new option for borrowers and lenders that has become increasingly more popular. As a borrower, you submit a loan request. This request is then made available to lenders of all types, and they have the option to fund the loan in order to make a return on their money with interest.
How to lower the default rate of peer to peer business loans?
Peer to peer business loans are a great option for small business and businesses just starting up. The best way to lower the default rate of a peer to peer loan is to borrow the smallest possible amount, and to make your monthly payments on time.
What debt to income ratio needed for peer to peer loans?
To qualify for a peer to peer loan, you will need a 50% debt to income ratio, or any number lower than that. You will also need a credit score of at least 660 in order to secure this type of loan.
Peer to peer lender who will pay off existing loans?
There are a few different peer to peer lenders who offer legitimate loan offers through verified investors. Keep in mind that if you want to pay off loans more than a couple thousand dollars, the loan funded may have to go directly to your lenders, and not directly to you.
How long out of bankruptcy for a P2P loan?
Typically, you’ll have to wait a few years post-bankruptcy to be able to apply for any loan, including a peer to peer (or P2P) loan. A bankruptcy indicates a high amount of risk associated with lending to you, so you may want to discontinue the use of credit cards or loans until you have built your credit score back up.
P2P for student loans or discover student loans when federal options are maxed out?
P2P (or peer to peer) loans can be used for many different loan needs: consolidating debt, home improvements, or unexpected expenses, among many others. If you are looking for a P2P loan to use as a student loan, that is possible, but you won’t get the low interest rate you get with federal loan options.
What happens if you cannot pay back a peer to peer loan?
Defaulting on a peer to peer loan is not a good situation, but there are a few things you can do to minimize the damage. You’ll want to contact the lender as soon as you have a late payment. Some may be willing to work with you by reducing your monthly payment amount. If you default on a peer to peer loan, it will probably be sent to collections, and it will definitely lower your credit score.
Who has the best peer to peer loan programs?
Finding the best peer to peer loan program is fairly easy, because most reputable lending companies have similar offers that you can compare so you can find the best one for your specific financial situation. Each different peer to peer loan program has its own unique set of offers, so the best one will vary by borrower.
How do peer to peer loans affect your credit?
A peer to peer loan will not affect your credit score any differently than a traditional bank loan. Although your credit score may lower because of an increase in your debt to income ratio, it won’t make a significant impact unless you default on your loan.
What are the implications of defaulting on a P2P loan?
Defaulting on a peer to peer (or P2P) loan has the same implications as defaulting on a traditional bank loan. Your credit score will be negatively affected, and your debt may be passed on to a collections agency, which comes with harassing phone calls and attempts to collect the debt.
Who consolidates P2P loans?
If you are looking to consolidate multiple P2P loans, it may depend on the total amount you are hoping to consolidate. In most cases, you can pay off multiple P2P loans and consolidate them into one monthly payment, but it may come with a higher interest rate than what you were initially charged on each individual loan.
The Application Process
Another great thing about peer to peer loans is that the application process is all online, and it’s quick and easy. You may need to upload documents to verify your information, but as you go through the application, you will receive account notices that will keep you apprised of the status of your loan and any pending needs. Applying for a peer to peer loan shouldn’t really affect your credit score, either.
How long do peer to peer loans take to fund?
Typically, a peer to peer loan is funded within 1-3 business days. If you are requesting a larger sum of money or if you don’t have great credit, it may take a little longer for a lender to pick up the funding if your loan.
How to apply for a peer to peer loan?
Applying for a peer to peer loan is easy. You will fill out basic personal information and provide your bank account and routing number, as well as answer some questions about your income and the reason you need the loan. That’s it! Then, you just wait for an investor to fund your loan.
How long does it take to be approved for a peer to peer loan?
It varies depending on your credit score and the amount you want to borrow, but typically, peer to peer loans are approved within 1-3 business days, with the maximum approval time usually between 7-10 business days.
How it works with a peer to peer loan?
Peer to peer loans are relatively simple in their design. The borrow fills out basic personal information and the amount of loan they need. The loan is then offered to various lenders, whether individual or businesses, and they can choose to fund the loan. The lenders benefit by making a profit from the interest on the loan.
How to get a peer to peer loan with bad credit?
Peer to peer loans are a great option for people who have bad or poor credit. You have a much greater chance of being approved for a peer to peer loan than a traditional bank loan, but keep in mind you may pay a much higher interest rate and annual percentage rate (APR) if you don’t have a good credit score.
How hard is it to get a peer to peer loan?
It is not hard at all to get a peer to peer loan. It’s probably the easiest loan process you will ever experience, as there is little to no hassle. Simply find a reputable online website and fill out the required information (which is minimal). Your loan will then be put up for bid, and you will receive notification as soon as the loan is funded.
What is the minimum salary you need to get a P2P loan?
There isn’t a minimum salary requirement for most P2P loans, although a few may have a minimum that is relatively low. It really all depends on the amount of money you are looking to borrow and your debt to income ratio.
What documents does Lending Club require you to upload for a peer to peer loan?
Lending Club may require documents that will allow them to verify your identity, income, or employment. These documents aren’t required in all cases; it varies depending on the borrower’s specific situation. Step-by-step instructions are provided to make uploading the required documents fast and easy.
What to do when your peer loan request is not funded immediately?
Don’t worry. Many peer to peer loans are not funded immediately, particularly if you don’t have the best credit score on record. Some loans may take up to 7 business days to be funded, as it does take some time for the money transfer as well. If you are concerned it’s been more than a week, go back to your account and check for updates. You will get a notice if the loan can’t be funded.
A Great Investment
Peer to peer loans provide a great investment opportunity that has never really been available before to regular, every day people who are not associated with any financial institution. Private investors are able to provide loans to people who are responsible with their payments but may not qualify for a bank loan for whatever reason, while at the same time earning a profit with the interest on the loan.
How to profit from peer to peer lending - earn 9% to 33% with small loans?
Peer to peer lending is referred to as a passive investment, because your money makes a profit with minimal work on your part. Low-risk loans come with the lower (9%) end of the return scale; whereas high-risk loans come with a higher reward (the 33% return). Each lending site will provide an overview of its investors’ returns.
How to track peer street loans in Quicken?
You can easily track peer street loans in Quicken by first manually adding or downloading the data from your bank. Simply select the loan type from the drop down box, and then finish adding the required specific details. You can then track any peer street loan or other loan that you own.
How to invest in P2P loans?
Investing in P2P (or peer to peer) loans is fairly simple. All you have to do is find a reputable online website that connects consumers with investors, and fill out the application to become a P2P lender. You will have to provide proof of funds along with other basic information, and then you are all set to earn a return on your investment.
How peer to peer loans work for investors?
Peer to peer loans are a new way for investors to increase their earnings, and they are a great way for consumers who don’t have great credit to get the loan they need. Most investors make a return of at least 8-10% on their funded loans.
How to make money investing in peer to peer loans?
Investors find peer to peer (or P2P) loans to be a low-risk investment in which they can get at least an 8-10% return on their investment, and they can get up to 20% or more in return, depending on the type of loans they choose to fund.
Why invest in P2P loans?
P2P loans, or peer to peer loans, are a good alternative to consider if you do not qualify for a traditional bank loan. Individual or business lenders have the opportunity to fund your loan, but you will have to allow them to electronically deduct your monthly payments. Investing in P2P loans is a way to make money without spending a lot of time or effort in the process.
What type of peer to peer loans have the most defaults?
There isn’t necessarily one certain type of loan that has the most defaults when it comes to peer to peer lending. The risk of default varies depending on each individual borrower. It is worth noting that the higher the risk of the loan, the higher the return for the lender.
How to sell a P2P loan?
There used to be no way to sell a P2P (or peer to peer) loan, particularly if the note is for a loan that is late. Folio is one of the only companies who will buy a peer to peer loan note to free up the investor from continuing to support the loan.
P2P loans - how to file taxes?
IF you are a P2P lender, you will receive 1099 tax forms for the interest and proceeds of the loans you funded in the previous tax year. You can use these forms to complete a TurboTax submission, or you can take it to any tax preparation service or accountant so they can properly account for your P2P loan investments.
How to make an income from peer to peer loans?
Many individual investors make anywhere between an 8% and 33% return on their investment funding peer to peer loans. Known as passive income, funding a peer to peer loan is a great way to let your money work for you with little time or effort spent.
Robert is our in-house expert on personal loans and finance. He got an MBA, specializing in Finance, before joining the workforce. After working for multiple Fortune 500 companies in the past decade, he brings a wealth of knowledge and experience to the table.