Peer-to-Peer Personal Loans for Borrowers
Min. credit score
What are peer-to-peer loans?
Peer-to-peer loans started with the idea of connecting borrowers and investors directly. They became popular for borrowers, especially those with low credit scores, after the 2008 financial downturn when many traditional banks’ lending requirements tightened. Peer-to-peer offered a better shot at getting money.
Today, the original “retail” form of peer-to-peer lending — where individual consumers invest in portions of loans — has evolved to include institutional lending, where institutions like hedge funds or insurance companies back the loans. LendingClub ended its program for individual investors in 2020 and now facilitates institutional lending. Prosper still allows consumers to invest in fractions of loans.
» MORE: Best loans for fair credit
How does peer-to-peer lending work?
To get a peer-to-peer loan, borrowers follow the same process as they would for getting an online loan.
Retail and institutional peer-to-peer lending companies check eligibility through pre-qualification, which involves a soft credit pull that doesn’t have an impact on your credit score.
Pre-qualifying allows you to select a loan amount and loan purpose while providing your name, date of birth and address. Then, you can see the annual percentage rate and loan terms you could be eligible for.
If you decide to apply, peer-to-peer lenders, like other lenders, confirm additional factors such as your credit score and credit history, which involves a hard credit check.
Features of peer-to-peer loans
Peer-to-peer loans are a type of online loan and share these common features:
Origination fee: This is an upfront fee that 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 allow borrowers to manage everything on the lender’s website, from applying for a loan and uploading documents to signing the loan contract and making monthly payments.
Since applications for peer-to-peer loans might be reviewed by multiple investors, they can take longer to fund than personal loans from banks or other online lenders — up to a week, in some cases.
Peer-to-peer loans for small businesses
Funding Circle and StreetShares are peer-to-peer lenders that offer only small-business loans. FundingCircle is aimed at businesses that need funding to expand, while StreetShares is better suited to newer businesses looking for working capital.
Can you get a peer-to-peer loan with bad credit?
Peer-to-peer loans can be an option for bad-credit borrowers (those with FICO scores of 629 or below), but they may have higher interest rates. For example, a four-year, $15,000 loan with a 28.7% APR would have monthly payments of $529 and an overall interest cost of $10,383. You can calculate average rates and payments using a personal loan calculator.
While lenders like LendingClub, Prosper and Upstart have minimum credit scores in the bad- or fair-credit range, you may be eligible for lower rates with a credit union or by pursuing a secured or co-signed personal loan.
How to pre-qualify for a peer-to-peer loan
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 have an impact on your credit score. You can pre-qualify on NerdWallet and compare loan costs and features from lenders that partner with us.
Last updated on November 22, 2022
NerdWallet’s review process evaluates and rates personal loan products from more than 35 technology companies and financial institutions. We collect over 50 data points from each lender and cross-check company websites, earnings reports and other public documents to confirm product details. We may also go through a lender’s pre-qualification flow and follow up with company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Our star ratings award points to lenders that offer consumer-friendly features, including: soft credit checks to pre-qualify, competitive interest rates and no fees, transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to credit bureaus and financial education. Our ratings award fewer points to lenders with practices that may make a loan difficult to repay on time, such as charging high annual percentage rates (above 36%), underwriting that does not adequately assess consumers’ ability to repay and lack of credit-building help. We also consider regulatory actions filed by agencies like the Consumer Financial Protection Bureau. We weigh these factors based on our assessment of which are the most important to consumers and how meaningfully they impact consumers’ experiences.