4 Best Peer-to-Peer Personal Loans for Borrowers

What are peer-to-peer loans?

Peer-to-peer loans, aka marketplace loans, originated with the idea of connecting borrowers and investors directly.

For borrowers, especially those with bad credit, this meant a better shot at getting money without going through traditional banks and credit unions, which tightened up lending after the 2008 financial downturn.

For investors with money to spare, lending to peers promised a higher rate of return than other investment channels, like the stock market.

Today, peer-to-peer lenders operate in an increasingly crowded field of online personal loan companies, some of which partner with the banks that previously discontinued their lending options.

» MORE: NerdWallet picks the best personal loans

Features of peer-to-peer loans

Peer-to-peer loans carry features that distinguish them from other types of online loans, such as origination fees and borrower grades.

• Origination fee: This is an upfront fee that most peer-to-peer lenders charge to cover the cost of processing your loan. The fee typically ranges from 1% to 8% of the loan amount.
• Online experience: Peer-to-peer lenders were among the first to develop automated underwriting algorithms that allow quick risk assessments without the need for loan officers. That means borrowers can manage everything on the lender’s website, from applying for a loan and uploading documents to signing the loan contract and making monthly payments.
• Borrower grades: Peer-to-peer lenders assign potential borrowers internal grades based on their financial data, such as credit score and the ratio of debt to income. These grades serve as a guide for investors so that they can choose grades to fund based on their risk tolerance. Borrowers typically cannot see their own grades, but some companies explain the grading rubric on their websites.
• Time to fund: Because peer-to-peer loan applications might be reviewed by multiple investors, they can take longer to fund — up to a week — than personal loans from banks or other online lenders.

Peer-to-peer loans for small business

Funding Circle and StreetShares are peer-to-peer lenders that offer only small-business loans. FundingCircle is aimed at businesses that need funding to grow, while StreetShares is better suited to businesses looking for working capital.

» MORE: Small business peer-to-peer loans

How to pre-qualify for a peer-to-peer loan

As with most online lenders, you can pre-qualify for a peer-to-peer loan to see estimated rates and terms before you formally apply. The pre-qualification process usually involves a soft credit check, which doesn't impact your credit score. You can pre-qualify on NerdWallet and compare loan costs and features from multiple lenders.