Peer-to-Peer (P2P) Lending

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Peer-to-peer — or P2P — lenders buck the standard process of lending where individuals apply for loans through traditional financial institutions. With a P2P lender, individuals can borrow funds from other individuals through an online marketplace. 

For people thinking about becoming a lender on a P2P loan platform, the main benefit is the potential to earn a higher return on your investment than through other strategies like stock market investing or real estate investing. And for people wanting to borrow funds through a P2P lender, the benefit is typically less strict credit requirements than one might find through traditional banks. 

In this guide, we’ll cover everything you need to know about peer-to-peer loans. 

What Is Peer-To-Peer Lending

P2P lending is a relatively new form of lending that gives investors a different way to earn returns than traditional assets like stocks and bonds. Rather than funding loans with the deep pockets of financial institutions, P2P loans are funded by individuals who sign up for accounts and pick and choose loans to fund. 

P2P lenders and borrowers never directly interact with each other. Rather, the P2P platform acts as a facilitator between the two parties. The most common type of P2P loan is a personal or business loan.

Depending on the company, P2P lenders may be more lenient or more strict with qualification standards. Many of them will cap loan amounts at around $40,000 to $50,000, lower than some traditional lenders.

Understanding Peer-to-Peer Lending

For investors

Some P2P lenders won’t allow just anyone to invest. They may require you to be an accredited investor, which is a standard set by the Securities Exchange Commission.  To qualify, you’ll need to have earned $200,000 in annual income ($300,000 for joint filers) for the last two years or have a net worth or joint net worth of $1 million or more. You don’t have to apply or fill out a form to become an accredited investor, but the lender must do its due diligence and be sure it’s only accepting investors who would qualify under those SEC standards. 

From the lender’s perspective, P2P lending is a bit like setting up an online dating profile. You set up an account, deposit funds into your account, then decide what you are looking for in a potential borrower. You get to decide whether you want to invest in high-risk, high-interest loans that could provide better returns on your investment or low-risk, lower-interest loans that could provide lower but more reliable returns.  You choose loans to fund based on their risk profile, as determined by the lender, and you don’t actually interact with the individual borrowers.

For borrowers

From the borrower’s perspective, they are assigned to certain risk categories that are set by the lender. The risk categories, which are based on things like amount requested, credit history, and income, help potential lenders decide which borrowers they want to lend to. Each lending platform has its own method of determining borrower categories. Some may allow borrowers and lenders to negotiate rates and terms of loans, but it varies. 

P2P lenders are similar to traditional lenders in some key ways. In general, the better your credit history, the lower the interest rate you’ll receive. P2P lenders also require verification of income and credit history for your loan to be approved. If you default on your loan, both traditional and P2P lenders will send your debt to collection agencies. 

What To Consider Before Getting a Peer-to-Peer Loan

The two big benefits of P2P loans for borrowers is that loans can be funded extremely fast compared to traditional loans, and P2P lenders are more likely to work with borrowers who don’t have the greatest credit profiles. 

Before you jump headfirst into P2P loans, keep in mind that they might be more expensive than other types of loans. Check the loans for fees and compare interest rates with other lenders before you sign up. 

Peer-to-Peer Loan Companies

The most common types of P2P companies offer personal loans and business loans. Here’s a quick rundown of three lenders to help you find the right lender for your needs. Be sure to shop and compare rates and fees at multiple lenders to find the best fit for you. 


Upstart offers loans of up to $50,000. The lender doesn’t just look at your credit score to determine your eligibility – Upstart will also factor in your job history and even education. Upstart allows potential borrowers to check their rates before they apply, which requires a soft credit inquiry that won’t affect credit score. You’ll need a credit score of 600 to qualify as a borrower. To become an investor, email


Prosper was the first official peer-to-peer lender in the U.S. and has been in business for nearly two decades. The lender offers up to $40,000 for personal loans and you can check your rate with only a soft credit inquiry on its site. Prosper offers funding in as little as one business day and offers loan terms of three to five years. Investors can sign up directly through its website

Funding Circle 

Funding Circle is a leading P2P lender for small businesses. It offers business loans between $25,000 and $500,000 and repayment terms up to 10 years. Rates start at 4.99%. Investors have to apply to become an investor through Funding Circle’s website form.