Back in the day, if you wanted a loan to pay off your car or credit cards, you’d go to a bank or a credit union, sit down with a loan officer, and wait for them to tell you yes or no as they “crunched the numbers.”
But now peer-to-peer (P2P) lending has come onto the market, offering loans to borrowers directly from individuals — and usually carrying more favorable terms for those without a great credit profile. Borrowers can access up to $50,000 (or more) from lenders, with fixed term repayment scheduled and reasonable interest rates. Investors can also become lenders on P2P platforms, earning interest collected on loans as a passive form of investment income.
Let’s break down some of the best peer-to-peer lending sites for both borrowers and investors, so you can determine which option is best for you.
Overview of the best peer-to-peer lending sites
- Best for those with high credit scores: Prosper
- Best for crypto-backed loans: BlockFi
- Best for young people: Upstart
- Best for a payday loan alternative: SoLo Funds
- Best for small businesses: FundingCircle
- Best for first-time borrowers: Kiva
Prosper: Best for those with high credit scores
- APR: 6.99% to 35.99%
- Term: 2 to 5 years
Prosper is the OG peer-to-peer lender in the market. It was founded in 2005 as the very first peer-to-peer lending marketplace in the U.S. According to their website, they’ve coordinated over $22 billion in loans.
Borrowing with Prosper
If you’re a borrower, you can get personal loans up to $50,000 with a fixed rate and a fixed term from two to five years in length. Your monthly payment is fixed for the duration of the loan. There are no prepayment penalties, either, so if you can pay it off early, you won’t be penalized.
You can get an instant look at what your rate would be and, once approved, the money gets deposited directly into your bank account.
Investing with Prosper
As an investor, you have many options on loans to choose from. There are seven different “risk” categories that you can select from, each with their own estimated return and level of risk. Here’s a look at the risk levels and the estimated potential loss, according to Prosper:
- AA – 0.00 – 1.99%
- A – 2.00 – 3.99%
- B – 4.00 – 5.99%
- C – 6.00 – 8.99%
- D – 9.00 – 11.99%
- E – 12.00 – 14.99%
- HR (High Risk) – ≥ 15.00%
As you can see, the lower the letter, the greater the risk of default, hence a higher estimated potential loss. With just a $25 minimum investment, you can spread your risk out across all seven categories to provide your portfolio some balance.
The borrowers that you’re lending to are also above U.S. averages regarding their FICO score and average annual income.
BlockFi: Best for crypto-backed loans
- APR: 4.5% – 9.75%
- Term: 12 months
BlockFi is a popular crypto lending platform that offers crypto-backed loans to borrowers and pays out interest to lenders. BlockFi offers instant loans and requires no credit checks for borrowers. All loans are collateralized, meaning borrowers will need to lock in their crypto to borrow against it.
Borrowing with BlockFi
If you’re a borrower, you can get a crypto loan for up to 50% of the value of your crypto, with rates ranging from 4.5% to 9.75% APR, depending on the amount of collateral. Payments are made monthly and are fixed for the duration of the loan.
Interest rates are determined by the amount of collateral deposited and the loan-to-value (LTV) of the overall loan. There is a 2% origination fee on all loans.
- Loan rate – 9.75% (50% LTV)
- Loan rate – 7.9% (35% LTV)
- Loan rate – 4.5% (20% LTV)
Bitcoin (BTC), Ether (ETH), Paxos Gold (PAXG), or Litecoin (LTC) can be used as collateral for the loan, and can be liquidated if the LTV goes above the original LTV of the loan.
Investing with BlockFi
BlockFi offers interest accounts for users who deposit crypto. The funds are used for crypto lending, and interest is paid out in the native crypto deposited. Interest rates vary by cryptocurrency, and range from 0.10% APY up to 7.50% APY. Stablecoins (such as USDC) pay out the highest rates.
Crypto interest accounts are not available to U.S. investors, as BlockFi was sued by the SEC for violating securities laws.
Upstart: Best for young people
- APR: 5.6% – 35.99%
- Term: 3 or 5 years
Upstart is an innovative peer-to-peer lending company that was founded by three ex-Google employees. In addition to being a P2P lending platform, they’ve also created intuitive software for banks and financial institutions.
What’s unique about Upstart is the way they determine risk. Where most creditors will look at a lender’s FICO score, Upstart has created a system that uses AI/ML (artificial intelligence/machine learning) to assess the risk of a borrower. This has led to significantly lower loss rates than some of its peer companies. Combine that with an excellent TrustPilot rating, and this company is certainly making waves in the P2P marketplace.
Borrowing with Upstart
Borrowers can get loans from $1,000 up to $50,000 with rates as low as 5.6%. Terms are either three or five years, but there’s no prepayment penalty.
Using their AI/ML technology, Upstart looks at not only your FICO score and years of credit history, but also factors in your education, area of study, and job history before determining your creditworthiness. Their site claims that their borrowers save an estimated 43% compared to other credit card rates.
Investing with Upstart
Investing with Upstart is also pretty intuitive. Unlike other P2P platforms, you can set up a self-directed IRA using the investments from peer-to-peer lending. This is a unique feature that many investors should be attracted to.
Like other platforms, you can set up automated investing by choosing a specific strategy and automatically depositing funds.
Upstart claims to have tripled their growth in the last three years due heavily to their proprietary underwriting model, so it might be worth a shot to consider this option.
SoLo Funds: Best for a payday loan alternative
- APR: 0% (tipping optional)
- Term: Up to 35 days
SoLo Funds is a peer-to-peer platform that functions as a short-term lender, similar to payday loans. With term lengths only lasting for up to 35 days, loans must be paid back in a narrow timeframe. But instead of charging fees, borrowers can leave an optional tip instead.
SoLo Funds is an affordable option for clients who are in a pinch and need an advance on payday, but there are hefty fees if loans are not paid back within 35 days. Users will need to pay a 10% penalty plus a third-party transaction fee if late.
Borrowing with SoLo Funds
Borrowers can take out loans up to $575 for a maximum of 35 days. Loans do not charge fees, but allow borrowers to select an optional tip amount to lenders.
Loan applications only take a few minutes, and while most loans post within a few days, some may be instantly approved, offering same-day funding with money transferred to borrowers within a few hours.
Loans must be paid back in full within 35 days, or there is a 10% penalty plus other transaction fees. There is no option to roll the loan over.
Investing with SoLo Funds
Lending is fairly straightforward, with a simple sign-up process and no pre-qualifications needed. Since the loans are smaller amounts (up to $575), there are no minimums required for lending.
SoLo Funds has a marketplace of loan requests from borrowers, with details specified on each. Each loan request shows the amount needed plus the tip given by the borrower for the loan. Each borrower also has a SoLo Score, on a scale from 40 to 99, with higher scores showing more “worthiness” for paying back a loan. Loans can go into default, and if needed, to collections through a third party. There is a risk of total loss with SoLo Funds investing, though the platform does offer insurance against loss for a fee.
FundingCircle: Best for small businesses
- APR: 11.29% to 30.12%
- Term: 6 months to 7 years
FundingCircle is a small business peer-to-peer platform. The company was founded with the goal of helping small business owners reach their dreams by providing them the funds necessary to grow.
So far, they’ve helped 130,000 small businesses across the world through investment funds by 71,000 investors across the globe. FundingCircle is different in that it focuses on more substantial dollar amounts for companies that are ready for massive growth. They also have an excellent TrustPilot rating.
Borrowing with FundingCircle
As a borrower, the minimum loan is $25,000 and can go all the way up to $500,000. Rates come as low as 5.99%, and terms can be anywhere from six months to seven years. There are no prepayment penalties, and you can use the funds however you deem necessary — as long as they are for your business.
You will pay an origination fee, but unlike other small business loans, funding is much quicker (you can be fully funded as quickly as 1 business day).
Investing with FundingCircle
As an investor, you’ll need to shell out a minimum of $25,000. If that didn’t knock you out of the race, then read on.
According to FundingCircle, you’ll “Invest in American small businesses (not start-ups) that have established operating history, cash flow, and a strategic plan for growth.” While the risk is still there, you’re funding established businesses looking for extra growth.
You can manage your investments and pick individual loans or set up an automated strategy, similar to Betterment, where you’ll set your investment criteria and get a portfolio designed for you.
Kiva: Best for first-time borrowers
- APR: 0%
- Term: Up to 3 years
If you want to do some good in the world, you’ll find an entirely different experience in P2P with Kiva. Kiva is a San Francisco-based non-profit that helps people across the world fund their businesses at no interest. They were founded in 2005 with a “mission to connect people through lending to alleviate poverty.”
Borrowing with Kiva
If you’d like to borrow money to grow your business, you can get up to $15,000 with no interest. That’s right, no interest. After making an application and getting pre-qualified, you’ll have the option to invite friends and family to lend to you.
During that same time, you can take your loan public by making your loan visible to over 1.6 million people across the world. Like Kickstarter, you’ll tell a story about yourself and your business, and why you need the money. People can then contribute to your cause until your loan is 100% funded. After that, you can use the funds for business purposes and work on repaying your loan with terms up to three years.
Investing with Kiva
As a lender, you can choose to lend money to people in a variety of categories, including loans for single parents, people in conflict zones, or businesses that focus on food or health. Kiva has various filters set up so you can narrow down exactly the type of person and business you want to lend your money to. You can lend as little as $25, and remember, you won’t get anything but satisfaction in return — there’s no interest.
You can pick from a variety of loans and add them to your “basket,” then check out with one simple process. You’ll then receive payments over time, based on the repayment schedule chosen by the borrower and their ability to repay. The money will go right back into your Kiva account so you can use it again or withdraw it. There are risks to lending, of course, but Kiva claims to have a 96% repayment rate for their loans. Just remember, you’re not doing this as an investment, you’re doing it to help out another person.
What is peer-to-peer lending?
As the name suggests, peer-to-peer lending involves private individuals making loans to other individuals. The system runs contrary to the traditional model of banks and credit unions providing financial services because it cuts out the middleman.
While peer-to-peer lending had a surge in users over the past decade, in the past few years, some P2P lending companies have shuttered their services, including StreetShares, Peerform, and LendingClub.
How does peer-to-peer lending work?
Peer-to-peer lending shares many similarities with traditional lending:
- You fill out an application with your financial and personal information, including the loan’s size, tax returns, and government-issued identification.
- The lender will review your application before posting it on the site for investors.
- Investors get to play the part of a loan officer, reviewing a list of applications and deciding where they might want to contribute.
- The platform will indicate how risky the loan is and the potential return on investment.
- Funding takes anywhere from one day up to two weeks.
Is peer-to-peer lending safe?
No one would say that peer-to-peer lending is 100% safe. No form of investing is. Many of the best peer-to-peer lending sites vet borrowers and investors to mitigate risk. The review process helps eliminate untrustworthy candidates, so borrowers can receive their loan and investors can earn interest.
Read more: Should you invest in peer-to-peer loans?
Pros & cons of P2P lending for investors
- An attractive alternative to more traditional investments — You can round out your portfolio that might exclusively include stocks, bonds, and mutual funds. Some platforms merge private and public equities, so you can make all your investments in one place.
- Most lending platforms let you select multiple loans at once — The variation enables you to reduce your risk exposure while potentially earning higher yields than a CD or savings account.
- Feel good about your contribution — With sites like Kiva, you know that your money is going toward a humanitarian purpose.
- Risk of default — When you lend money to individuals, you risk them defaulting. Peer-to-peer lending sites don’t come with FDIC insurance like a CD or savings account.
- P2P loans lack the liquidity of stocks or bonds — Most loans are for three to five years, so you would have to wait until then to withdraw money.
- Inequality — Some platforms, such as Funding Circle, only give access to accredited investors, so not everyone has equal access to lending opportunities.
Pros & cons of P2P lending for borrowers
- You can circumvent the traditional bureaucracy of brick-and-mortar banks — Instead of waiting in line and negotiating with a loan officer, you have access to a fast, online experience. Because online platforms don’t have to worry about physical overhead, many can give borrowers competitive interest rates.
- P2P loans typically aren’t as strict as banks or credit unions — The lax approach makes it easier to secure a loan if you have fair or poor credit history.
- Often no prepayment penalties — You don’t have to worry about prepayment penalties in many cases.
- Borrowers face more hurdles if they have a low credit score — Interest rates can go as high as 36% for those with lower scores, while some platforms don’t offer financial services to anyone with a credit score below 630.
- Possibly high fees — Some sites have origination fees of 6%.
- Impersonal — If you want the old-fashioned face-to-face borrowing experience, peer-to-peer lending isn’t for you. You don’t have a chance to sit down with your lender and hash out terms.
- Loan caps around $50,000 — If you need more money, you’ll likely have to go to a bank or credit union.
Peer-to-peer lending is a great option for borrowers with less-than-stellar credit who want access to capital with reasonable terms and rates. P2P lending is ideal for small businesses and individuals who are looking for a personal loan that does not require mountains of paperwork, and that is funded quickly (usually within a few days).
But not all P2P lending platforms operate the same, and some can charge high origination fees and interest rates. Others require high minimum loan amounts to borrow as well, making them less accessible to some borrowers.
Investors can earn decent returns with P2P lending, but there is also the risk of default and the mess of going through collections agencies occasionally. Finding a solid platform with detailed risk mitigation strategies (such as borrower scores), and insurance against default can help alleviate these concerns, but it may eat into your profits.
While peer-to-peer lending is not seeing the massive growth of a few years ago, it is still a solid option for borrowers and investors alike.