Home Others What Is Peer-To-Peer Lending And How It Works

What Is Peer-To-Peer Lending And How It Works


Peer-to-Peer loans are one way to consider if you’re in the market for loans. With peer to peer you’re basically taking out a standard loan, but cutting banks and credit unions out of the picture.

Especially for people whose credit scores aren’t exactly extraordinary, they still have a good chance at getting affordable interest rates with P2P.

Where it comes from.

Peer to peer loans come from people or investors that have a decent amount of cash, and are willing to lend it to those who need it. Online P2P services like Lending Club provide an interface for lenders and borrowers to communicate and smooth out the process.

Why you should do it.

P2P loans may or may not be better than standard loans depending on your requirements. It’s always wise to consider and thoroughly research all your options. However they do have some distinct features that set them apart.

Good Credit? Not necessarily.

In the current financial market, most lenders dislike handing out loans to those with low credit scores. P2P lenders however do not have the same reservations. Though you still need an average score to get approved- mid 600’s in FICO are optimal- P2P still offers you a larger variety depending on the lenders in your area. A point to be noted is that the lower your score, the more likely it is that your loans will cost more, and have higher interest rates.

Credit Building.

Your lender will most likely report your payment to the credit authorities. These loans are generally easier to repay, this builds your credit which helps you borrow on better rates in the future. However the same is true for the opposite; late payments or failing to pay off the loan will take its toll on your credit, so be wary. Make it a point to talk things through with your lender in case things get tight financially.

Interest rates.

P2P often offers much lower interest rates compared to bank loans. The difference is that there are no fixed policies. You and your lender agree upon a rate of interest. With fewer cogs in the machine, the rate of interest also lowers dramatically as most of the paid installments go straight to your lender rather than financing bank expenses. This means it’s quite often a better choice than using your credit card. An advance origination fee of 1 to 5% of your loan is to be expected when getting your loan approved.


Fishing for loans is a huge financial thorn in your side, not to mention that after you find a suitable one, you’ll have to wait a while to find out whether you got approved or not. The same does not apply on Peer to Peer loans. For one, the application process is much simpler, and although you can’t exactly find out whether or not you will be approved early on, you can get a fairly accurate estimate of whether or not it will be approved. The actual funds may not get there quite as quickly though, so if you’re in a real hurry, we suggest you try out some of the other nonbank lenders found online.

The popular lenders.

The P2P lending business is becoming larger day by day. Myinstantoffer.com Lending Club and Prosper.com are two of the big players in the game. Researching and reading up on all available lenders from trusted sources is important, and a quote from Lending Club might help you out along the way.

When providing sensitive information like your social security number, do thorough background checks. You don’t want that info to end up with potential Identity thieves.

How it works:

The first step would be to browse through the available lenders and choose one that suits your needs. Once that’s done, fill out your application. You may be asked things such as personal details or what you’re going to use the money for.

Your chosen lender will then check your credentials and credit, after which they will list your loan to be funded by lenders, if it’s approved that is.

Most loans are paid back over a time frame of three to five years, but due to its easy nature you can usually avoid paying any interest.

The funding however may take time, ranging from a few days to a few weeks. Your loan will be transferred to you electronically. Your payments will also be automatically digitally deducted.

Safety Concerns.

Most lenders you find online will be relatively user friendly. Most of them can be trusted to keep your information safe and secure, all your communication will be done through safely encrypted web browsers. Lenders will most probably be kept in the dark regarding your identity.


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