With the world becoming a global village, a lot of things are beginning to change, and individuals/investors are now turning to a new way to lend money to people and small businesses directly, as opposed to the traditional way, i.e., through financial institutions like banks or through some kind of middleman. In recent times, especially in the early 2000s, a new method through which investors can lend money came up. This method is what is called Peer to peer lending.
What is Peer to peer lending?
Also known as P2P lending, peer-to-peer lending is a process of lending money to individuals through online platforms that match lenders with borrowers. Often, this method is cheaper and offers lower overhead than those traditional money institutions.
8 Great peer to peer lending sites
In this article, we have compiled for you the eight best peer-to-peer lending websites for you to begin exploring if you want to try out peer-to-peer lending. Fantastically, these websites handle the underwriting of the loan and disturbing the funds, and they also make both creditors and debtors have favorable conditions.
Lending Club
As one of the first, this platform indeed came about in the early 2000s and has issued an approximate amount of 9 billion dollars to its investors. It has its headquarters in San Francisco, California. It was the first peer-to-peer lender that registered its offerings to provide loan trading in the secondary market. It was also the first lender to register as securities with the Securities and Exchange Commission.
Particularly, this peer-to-peer lending website has a high rating in returns on investments of about 8 percent to 10 percent.
Loan lengths range from 3 to 5 years on average. One percent of the overall annual fee must be paid, and investors can deposit from around $1,000 to $40,000. Also, investors get to choose their investment plan by themselves on the website or have the system handle it.
Prosper
Prosper was founded in the year 2005, and this platform also holds a place as one of the oldest peer-to-peer lending websites that exist. In fact, this is the first that ever existed.
Prosper has made lending money on their platform have a variety of risks and returns involved. According to their website, there are seven available options to choose from. And the greater the risk involved, the higher the return. According to them, more than 85% of investors have reached or passed their returns.
Kiva
Also founded in the year 2005, Kiva is one of the best peers to peer lending websites out there in the market as it is a non-profit lender. Any dollar borrowed on Kiva is used to fund loans, with a rate of interest of around 96 percent. You can start with a $25 investment plan.
The aim of this company is to make sure that it connects small business owners or individuals with people who are willing to lend them a reasonable amount of interest and often no interest too.
Payoff
Having been in business for over ten years, this is a website for peer-to-peer lending you might want to consider. One thing to note is that payoff is not exactly a peer-to-peer platform. What it does is that it collaborates with some other lenders to give you a loan only for the purpose of repaying your credit card debt. Getting loans from this company is not hard at all, as all you have to do is go to their website and put in the necessary details that follow once you apply for a loan.
Best egg
Though established in the year 2014, best egg gas has already recorded up to 11 billion dollars’ worth of loans to customers in 47 states. Build in a very proper manner. The aim of this P2P company is to make sure that it connects the correct borrowers and investors together.
APRs range from 5.99 percent to 29.99 percent on loans starting from $2,000 to $50,000. People borrowing must have a credit score of 600 or higher, with a low debt-to-income ratio (nothing more than 36%). The loan duration is three to five years, but it can be paid off early without attracting any penalty. And as an investor, you must buy whole loans but put in mind that the company has a policy that will safeguard your interest.
Peerform
Perform was founded in the year 2010 by some top dogs from Wall street who knew much about tech and finance. Looking for a peer-to-peer lending website that is both favorable to you as a borrower or as an investor? Then you should consider performing because its mission statement provides a trusted streamlined objective they want to achieve.
Borrowers can acquire loans with set rates from as low as 5.99 percent for amounts ranging from $4,000 to $25,000. Once you acquire the loan, you’ll have to pay an initiation charge that ranges from 1% to 5%. The good thing is that it has no hidden fees or prepayment penalties after that. And as an investor, you can either choose whole loans or fractional loans. Best go for the one that works best for you.
Upstart
Upstart, which was founded in 2012, is a well-known peer-to-peer lending website that has financed nearly $ 400 million in P2P loans and is still growing. So as to thoroughly verify all debtors, Upstart makes use of a basic scoring algorithm. However, the majority of borrowers on the site are under the age of 35 and have little or no credit or job history.
Upstart requires a $100 minimum investment, plus it charges a 0.5 percent annual fee to investors. Also, they give investors the chance to diversify their choice. Investors must be accredited, which means they must earn at least $200,000 per year.
As soon as a consumer loan is funded, the investor receives principal and interest payments until the debt is paid off.
Sofi
Established in the year 2011, it formerly started as a student loan platform but, over the years, has diversified its loan options. This renowned website offers borrowers and investors attractive rates, with typical APRs ranging from 5.99 percent to 20.89 percent. Adjustable-rate loans have a maximum APR of 14.95 percent. The usual loan period ranges from 24 to 84 months.
Private loans have a maximum value of $100,000, but they are only available to customers who meet tight qualifying standards (high or exceptional credit scores). There’s a little chance that a high-quality borrower will fault repayment on loan.
Peer to peer lending pros and cons
Every endeavor one engages in seems to have its advantages and disadvantages. While peer-to-peer lending can have a lot of advantages, there are also side effects that you have to consider. These will be listed below.
Pros of Peer to peer lending
Pros of peer-to-peer lending include the following.
Potential high return on investment: Unlike your traditional financial institutions, P2P lending offers better and higher rates on investments that you make with them.
No Third-party: Peer to peer, just as the name suggests, simply involves two people. Peer-to-peer lending websites simply connect the right borrows with creditors. As simple as that.
Better rates for borrowers: Also, unlike those traditional institutions, P2P lending websites allow borrowers to enjoy better repayment rates.
Cons of Peer to peer lending
Cons of P2P lending include the following below.
Higher risks: Peer-to-peer lending involves higher risks because there is an uncertainty of being paid back by the borrower.
Little or no punishment for borrowers who fault: Due to their policy of making an easier space for both borrowers and creditors, the platforms that operate P2P lending usually have no punishment for those who may not pay back in time.
FAQs
Is P2P lending secure as an investor?
P2P lending is not as secure as traditional financial institutions because they are not insured, and you cannot trace whoever you’re lending money to. This means that an investor can lose a lot of money if the borrower fails to pay back.
Is it legal to start peer-to-peer lending?
Yes, it is legal in the United States, although the amount of insurance given on it is not as much as that of the traditional financial institutions.
Will I always find a creditor on P2P?
Yes. Peer-to-peer lending websites have such an algorithm that it connects you with the right creditor that suits your requirement.
Conclusion
Peer-to-peer lending websites are more global market platforms that easily connect borrowers and investors/creditors. Both parties enjoy a more friendly rate and interest, making the platform user-friendly. In the above list of best peer-to-peer lending websites, you can easily pick from any of them to begin either borrowing or investing. Also, do not fail to check the policies of the company on their website before going ahead.
