What Is Peer to Peer Lending?

Peer to peer lending (also called P2P lending) is a form of alternative lending that gives individuals access to personal loans funded solely by investors. Online peer to peer lending platforms connect lenders and borrowers, removing financial institutions from the equation. This system allows investors to earn money by funding loans and gives borrowers a more accessible – and affordable – alternative to traditional lenders.

How Does Peer to Peer Lending Work?

Peer to peer lending is a straightforward process, though the exact steps may vary depending on the platform. Generally speaking, borrowers submit applications to apply for/request loans, and investors choose the loans they want to fund.

Some platforms allow loans to be crowdfunded by multiple investors, but it is also common to see loans funded entirely by single investors.

Peer to Peer Lending as a Borrower

Peer to peer lending platforms allow borrowers to apply for personal loans, small business loans, debt consolidation loans, and other kinds of loans. Borrowers submit a loan application and request and are then matched with investors who fund the loan. While the process may differ depending on the website, here is a general overview of how peer to peer lending works for borrowers:

  1. The borrower chooses which platform to use, signs up for an account, links their bank account, and submits an application for a loan.

  2. The peer to peer lending platform will verify the borrower’s application (which often includes a credit check and identity verification).

  3. If the application is approved, the borrower is given a loan grade based on their credit score, income, existing debt, and other factors. This grade determines their interest rate and indicates their risk level to potential lenders.

  4. Depending on the platform, the borrower can either apply for an existing loan or submit a loan request and wait for it to be funded.

  5. Once a loan is agreed upon, the borrower may be asked for supporting documentation (e.g. employment details, income information, debt, etc.) which will be reviewed for accuracy.

  6. If the loan is approved, the borrower will receive documents to finalize the transaction. Once the documents have been signed and returned, they will be processed and the funds will be transferred into their account.

  7. The borrower will repay their loan and interest according to the repayment schedule outlined in the loan documents.

Peer to Peer Lending as an Investor

Peer to peer lending websites create an opportunity for investors to earn money by funding consumer debt in the form of personal loans and small business loans. Investors choose which loans to fund and how much they want to invest. In return, they earn interest as the loans are repaid.

Here’s how peer to peer lending works for investors:

  1. The investor chooses which platform to use, signs up for an account, links their bank account, and verifies any necessary information.

  2. The answer may be asked about their goals and investing style in order to determine which loan grades are most suitable.

  3. Once signup and account setup is complete, the investor can fund their account and browse loan requests.

  4. The investor selects an open loan request and determines how much they want to invest.

  5. The investor receives and signs loan documents that outline the loan amount, repayment schedule, interest earnings, and other details.

  6. After the loan is finalized, the investor transfers money to the platform (which is then used to fund the loan). Once the loan is fully funded, it is issued to the borrower.

  7. As the borrower repays the loan, the investor receives their portion of the principal amount plus interest.

Best Peer to Peer Lending Sites

There are a number of popular peer to peer lending sites available, each with their own benefits and drawbacks. To help narrow down your options, we’ve rounded up some of the best peer to peer lending sites out there:.

Best peer to peer lending sites

Best Peer to Peer Lending for Bad Credit

By cutting financial institutions out of the lending process, peer to peer lending makes it easier for borrowers to obtain loans. While there are still eligibility requirements in place to protect lenders, some of the best peer to peer lending sites for bad credit include:

Best peer to peer lending for bad credit

The Top Peer to Peer Lending Sites

With so many P2P sites to choose from, it can be difficult to determine which one is right for you. Here are some of the top peer to peer lending sites available right now.


As one of the more popular peer to peer lending platforms, LendingClub is best known for its flexible loan options. It was established in 2007 and has issued over $60 billion in loans. LendingClub is available to borrowers with lower credit scores and also offers loans to small businesses (provided they meet the required qualifications).

Benefits of LendingClub

  • Funds can be used for almost anything from credit card debt to home renovation and beyond

  • No prepayment penalties

  • Low minimum loan amounts make short-term borrowing easy

  • Borrowers may be able to prequalify

  • Joint applicants allowed

LendingClub Rates and Details

  • Personal loan amounts range from $1,000 to $40,000

  • Business loans can be as high as $300,000

  • APRs are between 10.68% and 35.89%

  • Terms range from 1 to 5 years

  • Origination fees range from 2% to 6%, though the average is 4.86%

  • Minimum credit score requirement of 600



While most P2P lending platforms rely solely on credit scores to determine risk and eligibility of potential borrowers, Upstart takes a more human approach. Its motto, "You are more than your credit score" is taken literally as the approval process also considers applicants' academic and employment information. This makes Upstart more accessible to borrowers with low credit scores and limited credit history.

Benefits of Upstart

  • Great for recent graduates and new borrowers with limited credit history

  • Origination fees may be waived for some borrowers

  • Low minimum APR

  • Lenient requirements for business loans

  • AI-driven to reduce risk of defaults while increasing approval rate

Upstart Rates and Details

  • Loan amounts between $1,000 and $50,000

  • APRs are between 8.27% to 35.99%

  • Terms range from 3 to 5 years

  • Origination fees range from 0% to 8%

  • Minimum credit score requirement of 580



Established in 2005, Prosper was one of the first P2P lenders in the market and has coordinated over $17 billion in loans. Like Upstart, Prosper also takes an alternative approach to underwriting by evaluating personal and professional criteria alongside a credit check. Its straightforward approval process has helped over 1 million people secure loans for a wide variety of applications.

Benefits of Prosper

  • Joint applications allowed

  • Considers other criteria beyond credit score

  • Flexible loans can be used for a wide variety of purposes

  • No loan posting fees or prepayment penalties

  • Beyond personal loans, borrowers can also apply for a home equity line of credit (HELOC)

Prosper Rates and Details

  • Personal loans range from $2,000 to $40,000

  • APRs fall between 7.95% and 35.99%

  • Loan terms are between 3 to 5 years

  • Origination fees range from 2.41% to 5%

  • Minimum credit score of 600



Peerform also takes a tech-driven approach to P2P lending using an algorithm to determine borrowers' creditworthiness. The company was founded in 2010 with a mission to "provide borrowers with a positive experience when obtaining personal loans" and "offer a well-vetted choice of investment opportunities" to potential lenders.

Benefits of Peerform

  • Lower APRs than most other platforms

  • Lower origination fees than most other platforms

  • Algorithm can help borrowers with lower credit scores get loans

  • No prepayment penalties

  • Loans disbursed within 3 days

Peerform Rates and Details

  • Personal loans range from $4,000 to $25,000

  • APRs fall between 5.99% to 29.99%

  • Loan terms are 3 years

  • Origination fees range from 1% to 5%

  • Minimum credit score of 600



PayOff is a P2P lending platform designed to help borrowers refinance and repay credit card debt. Launched in 2005, this platform offers tools, financial literacy guides, and other services that help improve financial wellness. Loans can only be used towards credit cards, but interest rates are lower than most other platforms.

Benefits of PayOff

  • Extremely low APRs

  • Multiple repayment terms

  • Waived origination fee for some borrowers

  • Free FICO score access

  • Tools and resources for financial literacy

PayOff Rates and Details

  • Personal loans range from $5,000 to $40,000

  • APRs fall between 5.99% and 24.99%

  • Loan terms between 2 to 5 years

  • Origination fees range from 0% to 5%

  • Minimum credit score requirement of 640


How to Choose the Best P2P Lenders

With so many options at your disposal, it’s important to know how to choose the best P2P lenders. Here are the questions we asked to determine the top peer to peer lending sites:

Rates and fees - How do APRs and origination fees compare to other platforms?
Repayment terms - What repayment terms are available? Are they flexible?
Loan amounts - What are the minimum and maximum loan amounts?
Applications - How do you apply? What information is required?
Speed - How long does it take to apply for a loan? How long after closing are funds transferred?
Requirements - What are the eligibility requirements?
Ease of use - Is the platform easy to use? Is there an app?

Is Peer to Peer Lending Risk Free? What Borrowers Need to Know

Like any other loan, there’s always a risk of defaulting if you’re not able to repay the funds you borrowed. Most P2P loans are unsecured (so no collateral is at stake) but defaulting on a loan can cause serious damage to your credit score. Plus, if the loan gets sent to collections, you could encounter difficulties getting future credit or loans, risk property seizure, and/or rack up significant fees in the form of interest or penalties.

How Much Can You Make from Peer to Peer Lending? What Investors Need to Know

Many potential investors want to know whether peer to peer lending is a good investment. Like any other investment, it is possible to make money from peer to peer lending, but the amount depends on a number of factors. Before moving forward, it’s a good idea to explore the advantages, risks, and prospective returns.

Peer to Peer Lending Advantages

Despite being a fairly new way to invest, there are clear advantages to peer to peer lending. Your experience will vary depending on the platform, your investing style, financial goals, and other variables, but here are some of the main advantages of peer to peer lending:

  • Easily diversified investments (funding multiple loans)

  • Potential for solid returns

  • Support individuals and small businesses

  • Low minimum investment requirements

  • Low fees

  • Automatic option allows for hands-off investing

  • Potential to set up an IRA for tax advantages

Peer to Peer Lending Risks

Like any other type of investment, there are real risks associated with peer to peer lending. P2P lending is a newer industry, so there are increased risks due to fewer regulations, unpredictability of borrower behavior, lack of collateral, and other factors such as:

  • Borrower default

  • Late or incomplete repayments

  • Lack of FDIC insurance

  • Improper vetting of borrowers

  • Cost of collections if borrower defaults

  • Principal tied up for length of term

  • Risk of platform going under

Peer to Peer Lending Returns

Many platforms and investors claim that peer to peer lending boasts double digit returns, but in reality, experiences may vary. While APRs generally range from 6% to 36%, your actual returns depend on the platform, riskiness of the loan, repayment terms, fees, and a wide variety of other factors.

Generally speaking, average annual returns for peer to peer lending tend to fall between 7% to 11%. In 2019, Prosper (one of the larger platforms) released a report that outlined the returns made by lenders, broken down by borrower risk level:

Borrower risk vs average annual return

Best Peer to Peer Investing Options

Whether you’re looking to earn passive income or simply want an alternative to traditional investments, multiple P2P lending websites can help you achieve your goals. Compare some of the best peer to peer investing options to find out which one is right for you.

Best peer to peer lending options

P2P Regulations

As a relatively new industry, P2P regulations are fragmented and still evolving. The space is currently regulated by the:

The SEC handles the investor side of P2P platforms while the CFPB and FTC handle the borrower side.

Regulations are strict to protect both investors and borrowers, so there are few players outside of the major platforms. According to certain industry insiders, new platforms must obtain a number of licenses from state governments, making the process "costly and laborious."