Peer to peer lending which

StreetShares, for example, is designed for small businesses. Early on, the P2P lending system was seen as offering credit access to people who would be spurned by conventional institutions or a way to consolidate student loan debt at a more favorable interest rate. In recent years, however, P2P lending sites have expanded their reach. Most now target consumers who want to pay off credit card debt at a lower interest rate. Home improvement loans and auto financing are also now available at P2P lending sites.

The rates for applicants with good credit are often lower than comparable bank rates, while rates for applicants with sketchy credit records may go much higher. For lenders, P2P lending is a way to generate interest income on their cash at a rate that exceeds those offered by conventional savings accounts or certificates of deposit CDs.

People who are considering joining a P2P lending site as investors need to worry about default rates, as do conventional banks. Zopa had a default rate of 4. Any consumer or investor considering using a P2P lending site should check the fees on transactions. Every site makes money differently, but fees and commissions may be charged the lender, the borrower, or both.

Like banks, the sites may charge loan origination fees, late fees, and bounced-payment fees. Loan Basics. Personal Loans. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

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What Is Peer-to-Peer Lending? Peer-to-Peer Loan Features Peer-to-peer loans eliminate the financial institution as the middleman. Many peer-to-peer marketplaces have pre-qualifications available. Lower credit threshold is needed to qualify. Many financial institutions require good or excellent credit scores for borrowers to qualify.

Many marketplaces are open to borrowers who have a short credit history and those with higher debt-to-income DTI ratios. Helps build credit. Like personal loans from banks and other financial institutions, on-time payments to your peer-to-peer loan will help boost your credit score. Most marketplaces report to credit bureaus, which is good for your credit score and history. Peer-to-Peer Loans vs.

Conventional Loans Peer-to-peer loans have some similarities to conventional loans, but how you qualify and repay your loan might be a little different. Peer-to-Peer Loans Conventional Loans Funded by investors or companies Funded by banks, credit unions or online lenders Unsecured loans available Unsecured and secured loans available Pre-qualification available Pre-qualification usually available Lower credit score and credit history threshold needed to qualify Good or excellent credit score is usually required for eligibility, depending on lender Joint applications available, depending on lender Some co-signer options available, depending on lender.

Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article. Thank You for your feedback! Something went wrong. Please try again later. Best Ofs. Loan Basics. More from. By Dori Zinn Contributor. Borrowers apply for loans on peer-to-peer lending platforms , while investors select loans that seem like a good risk. An investor can choose to fund a portion of a loan or multiple loans individually.

Borrowers may receive funds from multiple individual investors. Peer-to-peer lending, also known as P2P lending, is an online system where individual investors fund loans or portions of loans to individual borrowers. Also called marketplace lending, peer-to-peer lending is a growing alternative to traditional lending. Borrowers and lenders can both benefit from this lending system. For example, some borrowers might be able to find a personal loan where they may have been denied by other lenders.

And peer-to-peer lending platforms may be a good alternative to payday loans or credit cards for some people. Depending on your credit, you may qualify for a competitive interest rate. But people with lower credit scores will likely see higher interest rates — sometimes even higher than the average credit card APR. Lending marketplaces may help small-business owners as well.