Best Peer-To-Peer Lending Sites For Borrowers and Investors

In the past, the vast majority of borrowers would go to banks or other large financial institutions if they needed to borrow money. There simply wasn’t a mechanism whereby borrowers could connect with individuals who were willing to lend money.

But as with many other businesses, the internet has changed the lending industry. Now thanks to online peer-to-peer (P2P) lending platforms, investors can instantly lend their money to borrowers from all around the world.

While banks and credit unions still have their place, P2P lending offers benefits for both borrowers and investors. Borrowers may qualify for a better interest rate or increase their approval odds. And investors may earn a better return on P2P loans than on other savings or investment products.

P2P lending sites have been growing at an incredible rate. Thinking about joining the party? If so, we break down some of the best P2P lending sites for both borrowers and investors.

Best Peer-to-Peer Lenders

Prosper

Founded in 2005, Prosper was the first P2P lending site to launch in the United States. Since then, it has facilitated over $17 billion in loans for over 1 million borrowers and investors.

Prosper borrowers

Prosper offers personal loans of $2,000 to $40,000. Interest rates are fixed and range from 7.95% to 35.99% and they offer loan terms of 3 or 5 years. Origination fees range from 2.41% to 5.00%. There are no loan posting fees or prepayment penalties.

In addition to personal loans, Prosper borrowers can also apply for a Home Equity Line of Credit (HELOC) of up to $300,000. Until the end of 2020, Prosper is offering a special 6-month intro interest rate on its HELOCs of 3.24% and as low as 3.99% Variable APR afterward (requires a $30k minimum draw).

Prosper investors

With only a $25 minimum investment per loan, Prosper makes it easy to diversify your money into multiple loans to reduce your risk. Also, investors can automatically reinvest their principal and interest payments into new loans to take full advantage of compound interest.

Investors browse Prosper’s site to evaluate the current loans that still need more funding. Each loan is assigned a risk rating based on the borrower’s credit score, loan size, and other factors. Below are the estimated returns for each risk rating.

The annual loan servicing fee that Prosper charges investors is 1% of the outstanding balance. Even after that fee has been subtracted, Prosper says that the average investor return on its loans is 5.2%.

Apply for a loan with Prosper or read our full Prosper review.

LendingClub

LendingClub was founded in 2007, only a few years after Prosper. Today, its one of the largest P2P lending platforms, having issued nearly $60 billion in loans.

LendingClub borrowers

LendingClub offers four types of loans to borrowers:

• Personal loans: Borrow up to $40,000 and repay within 3 or 5 years with fixed rates from 10.68% to 35.89% APR.
• Business loans: Borrow $5,000 to $500,000 and repay within 1-5 years with fixed rates starting at 4.99%.
• Auto refinancing: Refinance car loans that have an outstanding balance of $5,000 to $55,000. Interest rates range from 7.00% to 24.99% APR with the borrowers saving an average of $80 on their monthly car payments.
• Patient solutions: Create payment plans for your healthcare expenses with interest rates as low as 4.99%. Prosper works with over 23,000 providers to help their patients find more affordable financing.

For personal loans, origination fees range from 2% to 6%. But there are no application or prepayment fees.

LendingClub investors

Like Prosper, LendingClub investors can make individual investments as low as $25. However, LendingClub is different in that it does have a minimum deposit requirement of $1,000.

Investors can manually shop for individual Notes or they can set up an automatic investing schedule based on Grades, Terms, and other filters. All loans are assigned a risk rating of A, B, or C. Here are their average adjusted net annualized returns:

• A Loans: 5.46%
• B Loans: 6.74%
• C Loans: 7.60%

When all grades are combined, LendingClub loans have earned an average annualized return of 4.92%. And those returns can be automatically reinvested. As with Prosper, LendingClub’s annual investor fee is 1%.

Apply for a loan with LendingClub or read our full LendingClub review.

Peerform

Peerform was founded in 2010 and says that it exists to help dependable borrowers get the financing they need. It offers a fast and easy application process for borrowers and solid returns for investors. In 2016, Peerform was acquired by Versara Lending.

Peerform borrowers

Peerform offers unsecured personal loans of $4,000 to $50,000 with three-year terms and interest rates ranging from 5.99% to 29.99%. Additionally, borrowers can apply for 3-or-5-year consolidation loans with APRs of 5.99% to 21.95%.

Applications are free and there are no prepayment penalties on any of their loans. The origination fee on funded loans ranges from 1% to 5%. And loan funds are disbursed within three business days of approval.

Peerform investors

Unlike some of the other P2P sites on this list, you’ll need to be an accredited investor to invest with Peerform. If that’s you, you can evaluate each loan by its risk rating, ranging from AAA to DDD. All borrowers will have a minimum credit score of 600. The minimum investment per loan is $25.

Peerform says that it offers compelling-risk adjusted returns, but unfortunately doesn’t offer any specific numbers on its site. However, as mentioned above, the APRs on its loans range from 5.99% to 29.99% It also doesn’t publicly disclose its annual investors servicing fee.

Funding Circle

Funding Circle is a P2P lender that specializes in small business financing. Through its platform, over $12 billion has been lent to 90,000 small businesses around the globe.

Whether you’re looking to invest in American small business or you’re looking for a simpler and faster SBA loan financing alternative, Funding Circle could be the P2P lending site for you.

Funding Circle borrowers

Business Term loans with Funding Circle range from $5,000 to $500,000 with term lengths of 3 months to 10 years and APR rates of 11.29% to 30.12%. They also offer SBA 7(a) loans ranging from $25,000 to $500,000 with terms of up to 10 years and rates of Prime+2.75%. Other business financing options with Funding Circle include:

• Merchant Cash Advances
• Business Lines of Credit
• Invoice Factoring
• Working Capital Loans

Unlike the grueling SBA loan process, the loan application for Funding Circles Business Term Loans can be completed in as little as 6 minutes. And applicants receive decisions in as little as 24 hours with the potential for next-day funding. Origination fees range from 3.49% to 6.99%.

Funding Circle investors

You’ll need to have a larger chunk of cash to begin investing with Funding Circle than with other P2P lending sites. It has a hefty minimum investment requirement of $25,000. But once that initial investment has been transferred into your account, you can invest in increments as low as $500 per note.

Funding Circles Auto Invest tool can automatically invest (and reinvest) your money in creditworthy loans or you can manually select them. To date, its loans have averaged historical annual returns of 5% to 7%. The annual service fee is 1% and is deducted from your loan payments.

Kiva

Kiva is a unique player in the P2P industry in that it is a nonprofit organization. Founded in 2005, Kiva has spent the past 15 years helping underserved entrepreneurs get funding for their business ventures. And through its platform, investors can lend money to causes that they believe in.

Kiva borrowers

Kiva is truly one of the best P2P lending sites for small business borrowers available today. They offer small business loans of up to $15,000 at 0% interest. Yes, you read that right.

It takes about 20 to 30 minutes to apply for a Kiva loan. Kiva has no minimum credit score or collateral requirements. Instead, you ask friends and family to lend to you to prove your creditworthiness. Next, your loan goes public and is seen by over 1.9 million lenders around the world.

Finally, you repay your loan over a period of 36 months. Kiva says more than 2.5 million people have raised over $1 billion on Kiva and have repaid their loans at an incredible rate of 96%.

Kiva investors

While Kiva is a fantastic option for borrowers, it won’t be as attractive to all investors. Individual investors do not receive any interest on the loans that they support. On the flip side, there is a 96% chance that your loan will be repaid in full and Kiva doesn’t charge any fees to its lenders.

Kiva won’t be the right P2P lender for you if you’re looking to earn a monetary return on your loan. But if you really believe in a cause that your loan will support, your money can make a bigger difference with Kiva than sitting inside a savings account.

What is peer-to-peer lending?

P2P lending sites cut out the middleman (typically banks) of loans by connecting borrowers directly to individual investors.

Most P2P sites offer personal loans that can be used for any purpose, although some loans are intended for specific uses like credit card debt consolidation, home remodeling, or business financing.

P2P lenders also tend to leverage technology to improve the application and underwriting processes. And unlike traditional banks, most P2P lenders don’t have any brick-and-mortar locations which decreases overhead.

How does peer-to-peer lending work?

The P2P lending process begins with a borrower submitting a loan application. Most P2P lending sites will allow borrowers to check their rates with soft credit pulls that won’t affect their credit scores.

If given initial approval, the borrower will need to wait for the loan to be funded by investors before he or she can receive a disbursement. For large platforms, this doesn’t usually take long. In fact, most lenders advertise application-to-approval timetables of less than a week.

To invest in P2P loans, you’ll need to open an account with your lender of choice. Some lenders are closed to accredited investors only while others will work with any investor that can meet its minimum investment requirements. Check out the full list of top investments for non-accredited investors.

Average returns of all P2P loans tend to range between 5% and 7% per year. However, investors who are willing to fund riskier loans may be able to enjoy much higher annual returns. P2P sites can also provide a nice fixed income stream (like dividends) as principal and interest payments are typically sent to investors on a monthly basis.

Most important things to know about peer-to-peer lending

For borrowers, P2P lending sites are often advertised as great options for borrowers with bad credit. But that’s not always the case. In fact, many P2P lending sites will only accept borrowers with FICO scores above 600. Also, most P2P lenders charge origination fees of up to 8% that are usually deducted from your loan disbursement.

On the other hand, the rates at P2P sites for borrowers with good to excellent credit have become increasingly competitive. In fact, if you have strong credit there’s a good chance that a P2P lender may be able to beat the rates that major banks or credit unions offer.

For investors, P2P lending could generate much better returns than banking products like savings accounts or CDs. But all P2P loans do carry default risk. And since P2P lenders arent banks, investor funds are not insured by the FDIC. You can minimize your risk, however, by spreading out your total investment into multiple loans.

Related: Best Alternative Investments

It’s also important for investors to understand that P2P lending sites usually offer less liquidity than other investing options. While you can sell your shares of stocks, bonds, or mutual funds at any time, you’ll typically be committing to an investment horizon of 3 to 5 years with a P2P loan.

Related: Is P2P Lending A Good Investment?

How we came up with this list

To build our list, we looked at P2P lenders that offer loans to U.S. individuals or businesses. For borrowers, we examined the loan application process, interest rates, fees, and repayment terms to determine which lenders to include. And for investors, we considered factors such as eligibility criteria, minimum investment requirements, annual service fees, and average returns.

FAQs

Can you make money with P2P lending?

Yes, many P2P lenders have long track records of yielding positive returns to their investors. Average annual returns often range in the 5% to 7% range but could be higher for investors who are willing to take on riskier loans.

What are the risks of P2P lending?

Without FDIC insurance to act as a safety net, the biggest risk of P2P lending for investors is that the borrower could default on a loan. Other risks include the risk that interest rates could rise during the 3-5 years that your loan interest rate is fixed and the (less common) risk of a P2P platform going bankrupt.

Can you lose money with P2P lending?

Yes, you could lose money P2P lending if one or more borrowers default on loans that you’ve invested in. You can reduce your risk of losing money with P2P lending, however, by splitting your overall investment into smaller pieces and buying fractional shares of multiple loans.

Is it a good time to invest in P2P lending?

With many banks tightening their lending standards in response to the coronavirus pandemic, consumers could turn to alternative financing solutions like P2P lending in 2020 and beyond. However, interest rates are also at all-time lows. And when P2P platforms drop their own rates to stay competitive, it reduces their investors’ returns.

The bottom line

For borrowers, P2P can provides more ways to find funding. For investors, while risky, investing in small businesses and real people can be rewarding in more ways than one.