What comes to mind when you think about getting a loan? Many of us probably think about physically going into the bank where you have your checking account and filling out a form. Then, you’ll sit down with a banker and discuss your needs.
While such a process is alive and well, the advent of the internet has given life many different alternatives. One such example is peer-to-peer (P2P) lending. As the name implies, P2P lending allows borrowers to obtain loans directly from individuals willing to lend to them.
One of the benefits of this approach is that individual lenders are not required to fund the entire loan. In other words, there could be multiple lenders who decide to help fund it. That means less risk for each person who is lending money.
This style of lending works because it can benefit both parties. The lender can often enjoy a higher return than they would from other types of investments, such as index funds. Despite this, the borrower may be granted a lower interest rate than through other types of loans. Borrowers may be approved for loans even after banks have denied them.
Best P2P Loans for Bad Credit
In many ways, P2P loans are similar to loans with banks: fill out a form online, wait for approval from lenders, and (hopefully) reach an agreement on a loan. On PersonalLoans.com, loan amounts range from $1,000 to $35,000, which is similar to what other lending networks other.
To start the process, all you have to do is fill out an eligibility form through the lending site’s online software. A credit check may or may not be required; this varies from site to site.
Payments work much like personal installment loans, with monthly payments made until the loan is paid in full. If multiple lenders are involved, a portion of each payment will go to each lender proportionate to how much of the loan they funded.
$1,000 to $40,000
36 to 60 months
6.46% to 30.99%
You may have heard of LendingClub as they have been around quite a while; they were founded in 2006. They specialize in peer to peer lending with a variety of loan types available.
They offer personal loans, business loans, auto refinancing, and what they call “patient solutions.” In reality, patient solutions are medical loans. LendingClub does not explicitly state that you need a certain credit score for approval, but various sources have reported that a credit score of at least 600 is required. They do specifically say that you must be a US citizen and be 18 years of age or older.
When you apply for a loan, your application will receive a grade. The better your grade, the lower the perceived risk in funding your loan. This also means that your interest rate will be higher if you are seen as a more risky borrower.
There is an origination fee of 1%-6%; the average fee is 3.46%. Interest rates range from 6.46% up to 30.99% depending upon the grade your loan request receives.
Features and Benefits
- Best for borrowers with good credit and/or high income
- Little to no fees
- Trusted company with over $45 billion lended since 2007
- Allows joint loan applications
$500 to $35,000
3 to 72 months
As low as 5.99%
PersonalLoans.com is a lending network. It is not solely a peer-to-peer lending site; it does connect borrowers with banks. However, P2P loans are also offered. Note that there are several requirements including $2,000 of verifiable monthly income, a 600+ credit score, and that you must be employed.
P2P lenders may collect an origination fee of 1% to 5% to the loan. The entire process is done online and it only takes a few minutes to apply. And, depending on your credit score, you may be granted a lower interest rate than you would when borrowing on the bank. Just keep in mind that this largely depends on your credit score.
With PersonalLoans.com, loans range from $500 to $35,000, which means they are good for a wide variety of needs. However, if your credit score is on the low side, you shouldn’t expect to be approved for a $35,000 loan. Nevertheless, this lending network has a wide variety of loans that should suit your needs.
Features and Benefits
- Multiple loan types available
- Fast loan decision
- Funds deposited as soon as you accept an offer
- Nationwide availability
$2,000 up to $40,000
Prosper is also a peer-to-peer lending network based in San Francisco, CA.
They offer all types of loans with amounts ranging from $2,000 up to $40,000. They offer personal loans, debt consolidation loans, and home improvement loans. In the future, they will also offer home equity lines of credit (HELOC).
The minimum credit score required for Prosper is 640. This score is typically considered below average but is still higher than the minimum with some other lenders. Nevertheless, if you meet this requirement, you may want to look into their offerings.
The range of APR is similar to that of other loan networks, but it is always a good idea to shop around for the best rates available to you. You will not know exactly what that APR will be until you apply.
Features and Benefits
- Best for borrowers with at least a 640 credit score
- Highly experienced online lender
- Funding in as little as 1 business day
- Excellent for debt consolidation
4.73% - 35.99%
Last, but certainly not least, on our list of peer-to-peer lending networks is Upstart. Another Bay Area startup, this lending network was founded in 2012 and has some unique advantages.
Most of the basic requirements are the same as most other lenders; you must be at least 18 years old and have a bank account. You should also be employed and have a regular income. One thing to keep in mind is that residents of West Virginia and Iowa are not eligible.
So how is Upstart different? For one, origination fees can be as low as 0.0% (i.e. none), and APR is in the range of 4.73% – 35.99% APR. While the upper limit of APR is similar to other lending networks, there are few that offer rates as low as 4.73%.
Additionally, Upstart will consider your education, job history, and areas of study in determining your rates. Most lenders only consider your credit history. Upstart does this, but it also looks what a more complete picture of who you are.
Another benefit of Upstart loans is that you can have money available as soon as the next business day (after approval).
Features and Benefits
- Best for borrowers with average or new credit
- Offers education-based loans
- Great fit if you need fast cash
- Only requires a soft credit check
Best Lending Networks for Bad Credit
Peer-to-peer lending networks can be a nice way to gain access to the cash you need, but they aren’t always the best option. If you have bad credit, your interest rate may be higher for P2P loans than it is with banking institutions.
Some lenders also specialize in lending to those with poor credit, which could make them better equipped to meet your borrowing needs. However, if your credit history is especially poor, it is possible that you won’t be be able to find any offers.
Applying for a loan with a lending network also requires filling out an online form with some basic information. Each network has their own set of eligibility requirements, but those requirements are usually similar. For example, you typically must have regular monthly income, a checking account, and be 18 years of age or older.
If you are approved for a loan, you will be directed to the financial institution’s website to finish the process. You may have to provide additional information because each lender has its own set of requirements. If all goes well with your application, you will simply sign and accept the loan’s terms and condition. At that point, you’ll be ready to accept your funds.
This is different from peer-to-peer lending sites because lending networks act as a middle man. They are like an agent that works to find the best lender available to you. In doing so, they not only save you a lot of time, but also make it easier to find the best possible rates.
Peer-to-Peer Loans Make Borrowing Easier
In the days before the internet, it would have been a lot more difficult to find a peer-to-peer loan. You could have borrowed money from a friend or relative (and people still do), but borrowing from an investor with whom you did not already have a relationship would have been difficult.
With peer-to-peer lending networks, the process is simple. It is similar to applying for a loan with a lending network. In either case, you fill out an eligibility form which will evaluate you against a basic set of requirements.
If you meet those requirements, you will be presented with a set of potential loans. The biggest fundamental difference between peer-to-peer lending and lending networks is the loans with which you are presented. With peer-to-peer lending, lenders will be on the same platform as you. With lending networks, however, you’ll be directed to outside lender websites to complete the application process.
Another key difference between peer-to-peer lending and lending networks is the number of lenders involved. With loan networks, there will always be just one lender. With peer-to-peer networks, though, there could be multiple lenders involved.
Some peer-to-peer lending networks have higher credit score requirements than lending networks. In addition, peer-to-peer lending may be more sensitive to lower credit scores than banks – especially sub-prime lenders.
Overall, peer-to-peer lending provides another borrowing option for those who need it. They allow borrowers to bypass the red tap of banks and (potentially) gain access to their money faster.