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Even if you've borrowed money dozens of times, you may be asking yourself, "What is peer-to-peer lending?" Peer-to-peer lenders offer an alternative to borrowing money from your local bank. Here's what peer-to-peer lending is and how it works.
Peer-to-peer lending (referred to as P2P) matches people who need a loan with individuals willing to loan money. Most P2P loans don't require collateral.
The entirety of your loan may be funded by a single investor or by many investors pitching in smaller amounts. No matter how many investors are involved, final funding is handled through the P2P marketplace to which you applied.
Some P2P lenders offer loans up to $40,000, while others max out at $10,000. Before applying for a loan through a P2P lender, be sure to check the lending limits. For more information on loan amounts, see our guide to how much you can borrow with a personal loan.
You typically need a score of at least 580-600 to get a P2P loan. However, the minimum credit score for a loan varies by lender.
If you do have a low credit score, compare the rates available from a P2P loan with the rates and terms available through another lender that makes personal loans for bad credit.
Borrowing money from a P2P lending platform is similar to borrowing from a traditional lender:
These five P2P lenders represent some of the biggest names currently in the business:
If you find yourself in an emergency situation and need funds in your bank account quickly, there are alternatives to P2P lending. For example:
If you have a strong credit score, there's a good chance you qualify for a 0% intro APR credit card. This means you won't pay interest during the card's "promotional period" (usually 12-18 months). When that promotional period ends, you'll start paying interest at the card's regular rate. A 0% promotional rate credit card can be a good option if you know you'll be able to completely pay off the card before the end of the promotional period.
If you have trouble finding a loan, talk to your bank or credit union. No matter your credit score, your financial institution can view how often you make deposits, how much you have in savings, and more. They may be open to loaning you money because they know you better than other lenders.
No two online lenders are exactly alike. Whether you need a personal or business loan, if you decide that a P2P lending company is not for you (or your application is denied), check out other online lenders.
No matter which financial institution you shop, don't just check the loan interest rate. Also ask if there's a loan origination fee or other built-in costs that will end up making the loan more expensive.
The peer-lender approach offers an innovative twist on personal loans, but doesn't represent the only game in town. Before signing on the dotted line as a borrower, be sure to shop around and find the loan that best fits your needs.
RELATED: The Best Peer-To-Peer Lenders
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
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