If you need to borrow money, you might consider taking out a loan, getting a home equity line of credit or asking friends and family. However, if you have a limited credit history or don’t otherwise qualify for traditional financing, there’s another option: peer-to-peer lending.
What Is Peer-to-Peer Lending?
Peer-to-peer lending—also referred to as P2P lending—is an alternative type of personal loan. It lets people who wouldn’t otherwise qualify for a traditional loan borrow from investors, rather than working with a traditional lender. Borrowers request money through a marketplace and investors use the marketplace to fund those loans. Some common peer-to-peer lenders include Lending Club, Peerform and Prosper.
The purpose of peer-to-peer lending is to drop the financial institution as the middleman. Instead of using a bank, credit union or online lender, borrowers can get help from other people or businesses to fund their needs. If you’re exploring personal loan options, peer-to-peer marketplaces should be on your list if you:
- Have a short credit history (or no credit history)
- Have a fair credit score (FICO Score of 580 to 669)
- Don’t qualify for a personal loan from traditional financial institutions
- Have a strong credit history and want to shop for lower rates than are available through traditional lenders
- Prefer a more human, community-based approach to financing
How Does Peer-to-Peer Lending Work?
Peer-to-peer lending happens through an online marketplace. To obtain a peer-to-peer loan, a borrower completes an application similar to those required for traditional unsecured personal loans. If you’re approved by the marketplace, investors will have the