What is peer to peer lending all about? What are the top peer-to-peer lending apps out there in 2023? If these are the type of questions you have in your head, then let us do justice and answer them today. Peer to Peer lending is an alternative method of financial technology that allows you to obtain loans directly from other individuals without involving the bank.
P2P lending is called “crowd lending” or “social lending.” P2P technology uses websites or apps that link borrowers to investors. The websites or apps set their terms, conditions, and rates to guide and monitor the transactions. It is not only beneficial to the borrower but also to the investors.
In this article, we will look at Peer to Peer lending, the best Peer to Peer lending apps, and the advantages and disadvantages of Peer to Peer lending.
What Is Peer To Peer Lending?
In short term, P2P functions via websites and apps that connect borrowers directly to lenders. Each P2P website or app has rules, terms, and rates guiding the transactions. Some charge a default interest rate, while others vary their interest rates depending on the applicant’s creditworthiness.
Peer-to-peer lending in recent days has been used by borrowers and lenders who do not have the luxury of time or money to go through applying for loans from a traditional bank.
This type of lending allows individuals to connect directly with each other, making it easier for both parties to find the best loan terms and repayment options.
How Does Peer-to-Peer Lending Works?
Firstly, an investor opens an account with the website or app and deposits a sum of money that can be used as a loan. The borrower creates a financial profile. Here the borrower will be assessed and assigned to a risk category that determines the interest rate he/she will pay.
The borrower reviews the offers, the terms, and the rates and accepts them if he is okay with them. The whole transaction process involving borrowing and repayment is handled wholly by the website or the app. The process is manual ins some apps and entirely automated in others.
Some websites or apps specialize in specific types of borrowers. For example, StreetShares is designed for small businesses, and Lending Club has a “Patient Solutions” category that specializes in linking doctors to financial solutions.
Top 5 Peer-To-Peer Lending Apps In 2023
Below are the top peer-to-peer lending apps in 2023 to use if you want to invest in P2P lending or borrow from P2P investors. Each of these apps has its peculiarities.
1. Upstart
Upstart is one of the top peer-to-peer lending apps that was established in 2012 with the slogan, “You are more than your credit score.” One of the unique things about this app is the way they evaluate the borrowers. They do not only consider your creditworthiness.
They consider other factors, such as work history, academic performance, and even potential earnings. With this P2P app, you can borrow from $1000 to $50,000.
Interest Rates: The rates range from 6.5% to 35.99%. It charges an origination fee of between 0% to 10%.
Pros:
- It considers other data such as education, work history, and more
- Turnaround time of one to three days
- Charges no prepayment penalty
Cons
- It is not compatible with mobile app
- A late fee of 5% to 15% of the due amount
2. Prosper
Prosper is another top peer-to-peer lending apps that have been in operation since 2005. Prosper claims that over $17 billion have been invested in the platform, and more than a million people secured loans via the app. Prosper facilitates personal loan requests, from medical bills to emergencies to debt consolidation. It takes up to five business days to get funded via the Prosper app, and it has a high origination fee.
Rates: APR of 35.99% and an origination fee of 2.4% to 5%.
Pros
- Accepts a Debit-to-Income rate of up to 50%, which makes it perfect for high debt consideration
- No difficult credit check for preapproval
Cons
- Turnaround takes up to five business days.
- You must have a least three open credit accounts to qualify for a loan
- High APR an origination fee
3. Solo Funds
Solo Funds is one of the best peer-to-peer lending apps that was founded by friends to simplify the way personal loans and credit line works. The app was one of the very first to implement a p2p solution in the people of the United States of America.
We have written a detailed comparison of the top apps like Solo Funds so you can further do your comparison and make your choices.
4. SoFi
SoFi is an acronym for ‘Social Finance.” This peer-to-peer lending app specializes in facilitating student loans; however, you can still access personal loans. Before approving a request, SoFi considers the borrower’s education and income potential.
Also, as an Investor, you can use SoFi’s app to manage all your investments from one place, including cryptocurrency, stocks, and exchange-traded funds (ETFs). SoFi offers fixed-rate no-fee personal loans that range from $5,000 to $1000.
Rates: APR of 7.99% to 23.43%
Pros
- Has an option for a joint loan
- No fees
- It is available as a mobile app
- Offers hardship program for borrowers in need
Cons
No option for choosing your initial payment date
5. Funding Circle
Funding Circle has been operational since 2005. It specializes in refinancing small business loans. This platform has a 6-minute online application process, and borrowers can sometimes receive a decision within 24 hours and funding within just three days. Using this app, you cannot borrow under $5000.
Rates: APR of 11.29% and an origination fee of 4.49% to 8.49%.
Pros
- Accepts fair credit
- You can borrow as much as $500,000
Cons
- You must be in business for at least 2 years before you can qualify
- High origination fee
6. Lending Club
Lending Club was established in 2007 and boasts about $50 billion, which has been invested in the app since then. This P2P specializes in refinancing personal and business loans. Here, you can secure loans as low as $1,000. Also, investors can start with as little as $1,000.
Rates: APR of 3.99% for auto refinancing
Pros
- High Trustpilot rating
- Low APR
Cons
- Turnaround if upto 15 days
- It is not available in some states in the United States
How To Earn Peer To Peer Lending Passive Income
Peer-to-peer lending serves as one of the best ways to earn passive income through smart investment options. Investors earn passive income without putting much energy into the loans they invested through EMIs. Every month, you get credited to the escrow account you created on the platform as an investor. Some apps allow you to diversify and manage a wide portfolio of investment options, including crypto, ETFs, and shares.
Peer-To-Peer Lending Advantages And Disadvantages
Below are some of the advantages and disadvantages of Peer-to-peer lending platforms.
Advantages:
- Peer-to-peer lending is highly beneficial for investors because it offers higher returns than many traditional investing accounts.
- Peer-to-Peer Lending allows investors to diversify their portfolios to reduce risk.
- Peer-to-Peer Loans can be very accessible, unlike banks and other financial institutions that have rigid processes that make getting loans difficult.
- As a borrower, you have the liberty to shop for the best deal
- It is quick and simple and doesn’t require much documentation
Disadvantages
- The ease of securing loans could increase the temptation to borrow always. This can keep you in a debt hole forever.
- Peer-to-peer investing can be time-consuming
- It has a long turnaround time
- Investing in peer-to-peer lending is risky because there is never a 100% guarantee that a borrower will pay off his debt.
Top Peer-To-Peer Lending Companies 2023
Peer-to-peer lending companies have been in existence for long and some of them are really great. As we have listed above the apps you can carry out peer to peer transactions. Therefore, the top peer-to-peer lending companies you should know are;
- Solo Funds
- Lending Club
- Funding Circle
- SoFi
- Prosper
- Upstart
- BlockFi
- Kiva
How To Become Peer To Peer Lender
The following are steps to become a peer to peer lender in 2023.
- Save spare cash
- Find a P2P lending platform and register
- Request to become a lender
- Get approved
- Review borrowers requests
- Start offering P2P loans to borrowers
Conclusion
Peer-to-peer investing is an alternative to traditional financing and investment that give opportunities for investors to earn passive income and borrowers to get loans without going through the bank’s rigid process.
However, P2P lending is not without risks. But this risk can be managed if you lend only to people with high ratings and creditworthiness points. Before borrowing, it is advised to seek other low-interest options before borrowing from P2P apps due to their high interest and origination fee.
