A personal loan can be helpful for several expenses, including moving, consolidating credit card debt, medical bills, and other large costs. Peer-to-peer lending is an alternative to getting a personal loan through a traditional lender, like a bank or 🐠credit union.📖
With peer-t💜o-peer lending, borrowers work d🔜irectly with investors and receive more flexible loan terms if needed. Peer lending may not work for everyone, but here’s what you need to know if you’re considering this loan option.
- How does it work?
- Is it safe to use?
- How to get a peer-to-peer loan
- Where to get this type of loan
- Pros and cons
- Peer-to-peer lending fees
How does peer-to-peer lending work?
Peer-to-peer or P2P lending lets you borrow money as a personal loan that’s fundedꦏ by investors instead of a bank, credit union, oᩚᩚᩚᩚᩚᩚᩚᩚᩚ𒀱ᩚᩚᩚr online lender. You benefit by getting needed funds that you’ll pay back according to agreed-upon terms. The investor benefits by earning interest on the funds they loaned you.
P2P lending platforms exist to help match borrowe🃏rs with loan options. The terms and interest rates can vary among lenders, but lenders may allow you to borrow anywhere from $2,000 to $50,000 and you could receive funds in as little as one business day. Repayment terms typically range from two to five years.
Is it safe to use peer-to-peer lending?
P2P lending is safe so long as you use a credible lender. So make sure the lender doesn’꧅t have suspicious reviews or pose red flags, such as not having a customer service department or an accredited Better Business Bureau profile.
“To avoid P2P loan scams, thoroughly review the platform’s reputation, security measures, user reviews, and borrower screening processes,” said Blake Whitten, a financial advisor at Whitten Retirement Solutions. “Assess borrower profiles, look for consistent information, and be wary of unrealistic promises.”
Trusted P2P lenders will take borrowers through a sܫecured process to carefully screen their application and credit details. As an investor, you always run the risk of a borrower defaulting on the loan and delaying your retu♍rn on investment.
However, it’s best for both borrowers an🌟d investors to avoid scams by thoroughly vetting the lending company before submitting any personal information.
How to get a peer-to-peer loan
The process of getting a peer-to-peer loan is very similar to getting a personal loan through a traditional lender.
1. Find out if you prequalify: Visit a P2P lender, such as Prosper, and fill out a short form to determine if you qualify for a loan. This will usually only result in a soft credit check and you’ll be able to preview loan terms and interest rates before you apply.
2. Compare rates: Prequalify with online personal loan lenders 🌊to compare the rates and terms of a P2P loan with a more traditional personal loan.
3. Submit an official loan application: When you officially apply, this will result in a hard inquiry on your credit report as the lender needs to check your credit score and history. You may also need to upload supporting documentation like recent check stubs🎐 or pay statements.
4. Review and agree to loan terms: If your application is approved, you’ll be able to review the terms of the loan before agreeing to it. Carefully look over the loan agreement to make sure you understand its terms, including the interest rate, monthly payment amount, upfront and ongoing fees, and repayment term.
5. Receive your loan funds: Once you agree to the loan’s terms, your lender will disburse the funds. The time it takes varies depending on the lender, but the easiest and quickest option is usually to receive the money by electronic transfer.
How to lend money
If you’re looking to invest as a peer lender, you can start by choosing a lending platform. You’ll need to meet ൲the minimum investment requirements. Prosper is one lender that allows you to sဣtart investing with as little as $25.
O🔴ther lenders have stricter requirements, including certain salary and net worth minimums.
Where to get a peer-to-peer loan
The most common place to get a P2P loan is Prosper. The lender has no prepayment penalties and allows you to borrow $2,000 to $50𝔉,000. 💝Rates start at 6.99% and this lender also provides loan funds in as little as one business day.
Pros and cons of peer-to-peer lending
Li♔ke any lending option, P2P loans have benefits and dr𓄧awbacks.
Pros
- Less strict requirements: P2P loans tend to have more lenient credit score requirements, making it easier to qualify.
- Quick funding: You can receive your loan funds by the following business day with some P2P lenders.
Cons
- May have higher fees: P2P loans may have higher fees than a personal loan through a bank. This can include origination fees and late payment fees.
- Higher interest rates: While peer-to-peer lenders may accept borrowers with a lower interest rate, you could also be charged more interest — up to 36% with some lenders.
- Fewer payment relief options: Some P2P loans may not have certain relief or deferment options that banks or credit unions have if you can’t make payments. If you find yourself unable to make payments, it’s important to contact your lender as soon as possible to discuss your options.
Does peer-to-peer lending have fees?
Yes, P2P loans may have fees such as an origination fee up t🐟o 5% or higher. While most loan options don’t charge prepayment fees for paying down your loan early, you will likely be charged a late fee if you miss a payment. This late fee can vary by lender.
“It’s important to consider these fees and understand their potential impact on the total cost of the loan,” said Whitten. “Evaluate the fee structure of different platforms and loan offers, and compare them to traditional bank loans. By considering these factors, borrowers can make informed decisions about P2P loans and manage their borrowing costs effectively.”