Peer-to-Peer Lending Review
Why Choose Peer-to-Peer Lending?
The top performers in our review are Lending Club, the Gold Award winner; Upstart, the Silver Award winner; and SoFi, the Bronze Award winner. Here’s more on choosing a system to meet your needs, along with details on how we arrived at our ranking of 10 companies.
Peer-to-peer lending, commonly shortened to P2P lending, is an alternative to standard bank loans. With a peer to peer loan, you are matched with a lender through an online service These differ from crowdfunding sites, which don’t require you to pay off the funds you raise. P2P loans are comparable to the amounts you can get for a personal loan through a bank. Peer to peer small business loans are also available if you need to raise money for your business. Another option for a small business owner is merchant cash advances, where your business receives a lump-sum payment as an advance against future sales. Learn more by reading our Peer-to-Peer Lending articles.
Advantages & Disadvantages of P2P Lending
One advantage of P2P lending site is that the applications only take a few minutes to complete. Your application is then reviewed and assigned a loan grade or score if it is approved. Your grade is based on a few factors, such as your credit score, debt-to-income ratio, education, strength of your application and, if applicable, your business proposal. These grades affect the amount for which you will be eligible, your interest rate and the term, among other facets of your loan.
Peer to peer lenders fund your loans in two ways. Some sites post your application for up to 14 days, giving potential investors opportunity to review your application. Investors then decide to fund your loan, providing a portion of your total requested amount. One disadvantage of these types of lenders is that you may be required to raise a certain percentage of the funds.
If your request reaches 100 percent funding or the listing time expires – given you meet any percentage requirements – you may accept or decline the loan. The time to receive the loan depends on how long it takes investors to fund your loan plus standard processing time, typically a few business days.
The alternative way P2P companies fund your loan is by approving your application and drawing funds from a pool of blind investors rather than having investors individually review your application. In this case, you do not have to wait for your loan to be funded because the company decides to fund your approved amount in full, and the time to receive your loan is simply the time for confirming information and processing. Typically, this process takes a few business days, though some services offer same-day or next-day deposits if all paperwork is in order.
After you receive your funds, you pay back your loan in equal, monthly payments. Typically, P2P loan terms are between one and five years with three- or five-year terms being most common. A few factors affect the term of your loan, but most often, the amount of your loan and your loan grade weigh mostly heavily in determining the term.
Another disadvantage of P2P loans is that credit rating is a large factor, and there are few options for borrowers with low credit scores.
How We Evaluated P2P Lenders
As a consumer seeking a loan, you want a company that is easy to work with and is forthcoming with its rates, fees and processes. In addition to researching each company to discover those elements, we contacted the companies as a prospective customer with questions about applying for and receiving a loan. While we did not apply for a P2P loan with each company, we assessed the customer experience by our interactions with the companies. We contacted customer service as if we were a small company looking for a loan, asking questions about the loan processes, assessing consistency in responses and evaluating overall satisfaction from a potential customer's perspective. We determined the companies' preferred contact method, as some companies have great customer service over the phone but never returned our emails.
When shopping around for loans, it can be frustrating to be unable to find the information you're looking for, so we also considered the amount of information each company’s website provides without having to contact customer service. Some companies provide ample information, such as rates, statistics about their loans and additional information in blogs. Other companies provide minimal information, including not disclosing rates and inadequate or vague descriptions of their processes. Those two factors – interactions and provided information – affected our experience as a potential customer researching P2P loan choices.
The P2P lending services included in our reviews are some of the best in the business. While your loan amount, term, rate and other specifics of your loan will vary based on your financial history, your reason for the loan and your application, some services provide better highs and lows for each figure, a better customer experience or more comprehensive support options than others.
The scores we used to evaluate the eligibility requirements and fees are based on the information provided by the lenders. The eligibility score includes factors such as the loan amounts and income requirements. A higher score does not mean you are guaranteed acceptance; the eligibility requirements have easier-to-meet thresholds than other lenders on the review. The fees score takes into account the various fees and penalties a lender assesses. These are in addition to the interest rates, which were not included in this score. A higher score here usually means that there are fewer fees, but again, there are many factors involved in these loans, so yours may differ.
The application process is important. If you choose a company whose loans are funded by individual investors, you may need to create a business plan that convinces others of the saliency of your business and the validity of your loan request. Most services require you to list the reason for your loan, but other services, such as Pave, do not, allowing you to allocate your funds where you see fit.
Our Verdict & Recommendations
Lending Club is the top-ranked lender in our review. It scored well on the prospective customer experience and has less onerous eligibility requirements when compared to other lenders. It also offers a dedicated advisor.
Upstart is another good choice that our reviewers rated well in terms of eligibility requirements and prospective customer experience. This lender does charge some fees that you may want to be aware of.
SoFi is a social lender that has stricter eligibility but does waive some of the fees other peer lenders charge.
Prosper also rates well on eligibility requirements, but it can be difficult to get ahold of this lender. Funding Circle offers a dedicated advisor to assist borrowers. Daric rated well with regards to its eligibility, but this lender is difficult to contact.
Beyond the numbers, your experience applying for and repaying the loan are paramount. All P2P companies work slightly differently, having different requirements for loans and differing policies. Knowing what you want in your loan company – or, often more importantly, what you do not want – will lead you to the best P2P loan company for you.