But times have changed. Instead of going to banks and brokers, we simply go to each other. That’s exactly what peer-to-peer lending is all about—helping each other, rather than relying on big banks.
That’s why around 2005, Prosper was created as a marketplace where people could lend money to one another. It benefited both sides, too. Borrowers got money without having to go through a bank, and lenders made money by loaning their funds to other people.
Since then, peer-to-peer lending has skyrocketed. One study shows that since 2006, P2P lending has seen annual growth of about 110 percent. And it doesn’t seem to be slowing down, either. With more and more marketplaces popping up every year, your options have become overwhelming.
In this article, I’ll break down some of the best peer-to-peer lending sites for both borrowers and investors. From there, you can determine which option is best for you.
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 $12 billion in loans to more than 770,000 people.
Borrowing with Prosper
If you’re a borrower, you can get personal loans up to $40,000 with a fixed-rate and a fixed-term of either three or five years. 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 returns, according to Prosper:
- AA – 4.99 percent
- A – 5.22 percent
- B – 5.77 percent
- C – 7.78 percent
- D – 11.49 percent
- E – 13.48 percent
- HR (High Risk) – 11.74 percent
As you can see, the lower the letter, the greater the risk of default, hence a higher estimated return. With just a $25 minimum investment, you can spread your risk out across all seven categories to provide your portfolio some balance.
Prosper also says that nearly 84 percent of their active investors met or exceeded their expected return on investment. The borrowers that you’re lending to are also above U.S.-averages regarding their FICO score and average annual income.
2. Lending Club
Lending Club is similar to Prosper; only they got started two years after Prosper did, in 2007.
Borrowing with Lending Club
For borrowers, Lending Club offers four different types of solutions:
- Personal loans. You can get a personal loan up to $40,000 that you can use for pretty much anything—like paying down credit cards, consolidating debt, improving your home, or paying for major expenses like a wedding or a car.
- Business loans. You can get a business loan up to $300,000 with a fixed term between one and five years with no prepayment penalties. To qualify, you’ll need to have been in business for at least 12 months, have at least $50,000 in annual sales, have good business credit, and own at least 20 percent of the company.
- Auto refinancing. If your car is less than ten years old, has under 120,000 miles, and was used for personal use, you can qualify for an auto-refinancing loan. The loan must have originated at least a month ago, have at least two years left on it, and you must owe between $5,000 and $55,000.
- Patient solutions. Lending Club works with doctors around the country to help you finance your medical and dental bills that you can’t pay for all at once. To see if your bills are eligible, go to this page and type in your doctor’s practice name. You can get up to $50,000 for all types of bills and procedures—including hair restoration, fertility, and weight loss surgery.
Investing with Lending Club
For individual investors, you can invest as little as $25 (you still need to transfer a minimum of $1,000 into your account) across a variety of risk profiles—called notes.
One thing that Lending Club does nicely is they develop an automated solution for you if you don’t want to pick loans manually. You can choose a platform mix, custom mix, or do it manually. This allows you to become diversified with the click of a button, and you don’t have to worry about finding loans that fit specific criteria. There are also various types of accounts you can open, including a joint account and a trust account.
Finally, Lending Club has a pretty robust education section where you can learn more about investing with them – this way you don’t feel left in the dark with this newer type of investment strategy.
Lending Club Disclaimer:
Peerform was founded in 2010 by a group of Wall Street Executives who had backgrounds in both finance and technology—so it was the perfect marriage to start a peer lending platform. According to their site, they had two primary objectives, which continue today:
The first was to provide borrowers with a positive experience when obtaining personal loans with a process that is clear, fast and fair. The second was to offer a well-vetted choice of investment opportunities that provide the chance to achieve favorable risk-adjusted returns.
Borrowing with Peerform
Borrowers can get peer-funded loans anywhere from $4,000 to $25,000 with fixed rates as low as 5.99 percent. You’ll have to pay an origination fee anywhere from 1 to 5 percent when you get the loan, but after that, there are no hidden fees and no prepayment penalties.
Investing with Peerform
Investors can choose between two different types of products with Peerform: Whole loans or fractional loans.
Peerform says that whole loans are best for institutional investors, while fractional loans are meant for individuals. Peerform has an astounding 16 different risk classes to invest in, and they claim to have an algorithm that is continuously evolving as new loans are funded so they can provide the best data for investors. You can also tailor your investment mix with their customization options so you can get the most diversified portfolio possible.
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; 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 8.85 percent. 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 they also factor in your education, area of study, and job history before determining your creditworthiness. Their site claims that their borrowers save an estimated 24 percent 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. More than 80 percent of borrowers on Upstart are college-educated with a weighted average income of over $83,000, and over 77 percent of them are paying off credit cards. This provides a pretty good look at who you’re investing in. 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.
Apply for a loan with Upstart or read our Upstart review
StreetShares is a peer-to-peer lending platform that’s a little different than those mentioned above. First of all, the borrower loans are designed for small businesses.
Borrowing with StreetShares
As a borrower, you have three types of loans available to help your business grow:
- Term Loan. You can get a loan anywhere from $2,000 to $100,000 with terms as short as three months and as long as three years. You get the funds deposited immediately upon approval, and there are no prepayment penalties.
- Patriot Express Line of Credit. This loan type offers you more flexibility. You can get anywhere from $5,000 to $100,000 with terms ranging from three months to three years. Since it’s a line of credit, you can draw on the funds when you need them, and you’ll only pay interest on the money you use.
- Contract Financing. This type of loan is based on your future earning potential and will require a little more to get approved. There’s no limit on how much you can borrow; there’s a Mobilization Loan/Line option, and no prepayment penalties.
To qualify for any of these loans, you’ll need to be a U.S. resident, be in business for at least one year, earn a minimum revenue (StreetShares doesn’t say what this is), and have a business guarantor with “reasonable” credit.
Investing with StreetShares
Investing is the other thing that’s a little different than other P2P platforms. With StreetShares, you can invest in a Veteran Business Bond that helps business owners across the country. According to their site, “StreetShares funds loans to Veteran and main street businesses.” You’ll earn a flat 5 percent interest rate on your money, and you can deposit anywhere from $25 to $500,000.
After one year, you can withdraw your money with a 5 percent earnings tacked on. If you need the money sooner than that, you can withdraw it by paying a 1 percent fee. You can also leave the money in the account to continue growing after one year, and you can add money throughout the year to increase your earnings.
FundingCircle is another 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 40,000 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 4.99 percent, and terms can be anywhere from six months to five 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 get cash in as little as five days).
Borrowing with FundingCircle
As an investor, you’ll need to shell out a minimum of $250,000. If that didn’t knock you out of the race, then read on.
According to FundingCircle, you’ll “Invest in American small businesses (not startups) 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.
7. Kiva (non-profit)
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 organization that helps people across the world fund their business 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 $10,000 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 percent funded. After that, you can use the funds for business purposes and work on repaying your loan with terms up to three years. Here’s a video that explains the process in more detail:
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 97 percent repayment rate of their loans. Just remember, you’re not doing this as an investment, you’re doing it to help out another person.
There you have it. A good mix of options for peer-to-peer lending, both as a borrower and an investor/lender. Peer-to-peer lending continues to grow in popularity and is becoming a much more viable option for people who need money and for people who want to invest their money.
While Prosper is the oldest of the bunch, don’t lose sight of newcomers like Upstart that offer a different spin on things. Kiva will help you do your part in helping businesses across the world, while companies like StreetShares will allow you to profit from it.
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