If you have ever approached a traditional bank for borrowing money to buy a house or a vehicle, you would have realized that it is a rigid and long drawn procedure. In the end, your application may even be rejected. It is the issues associated with borrowing from traditional banks that have given rise to the emergence of the peer-to-peer industry. In less than a decade, this industry has not only registered tremendous growth but also has become a viable option for borrowing money. In fact, this industry is proving to be a strong competitor to the conventional banking system.
The peer-to-peer (P2P) lending marketplace, an online platform, is the meeting place of borrowers and lenders. The conventional banking protocols are not applicable here. These platforms do not use their own funds for lending purposes but help loan seekers and lenders to connect with each other.
This lending system has made it easy for the needy to borrow money. You need not go to a bank in person, apply for a loan and then wait for the approval to come through. In addition to the fact that you can obtain a loan quickly, some of the aspects that have made the P2P lending system a huge success are the simplified application procedure, low-interest rate, and accelerated decision making and disbursal.
A PriceWaterhouseCoopers report noted that though the P2P industry is in its infancy loans to the tune of $5.5 billion have been disbursed by the P2P websites in the U.S. in 2014 alone. According to PriceWaterhouseCoopers, P2P lending could be more than $150 billion by 2025.
Top Peer-to-Peer Lending Platforms
The rising popularity of P2P lending websites and competition among them has led to the availability of varied products. In general, the basic principle of operation of these marketplaces are the same, but the area of focus, eligibility criteria, loan rates, tenures, amounts, etc., may vary from one lender to another. While some focus on providing personal loans, some others provide student loans, professionals loans, and business needs.
Having discussed a few aspects of peer-to-peer lending sites, here are the top seven websites you can consider if you are shopping for a loan:
#1: Funding Circle
Funding Circle focuses mainly on small business lending in the U.S., the U.K., Germany and the Netherlands. The co-founders of the website started the platform in the U.S. to provide funds to small businesses. They founded the platform because of their own experience with the conventional banking system which failed to support small businesses. Their loan application was rejected 96 times. The founders then decided they would abandon the traditional banking system and creating a feasible borrowing option for owners of small businesses.
Funding Circle has disbursed more than $4 billion in loans to over 32,000 small businesses across the world. Along with the growth in terms of the number of businesses borrowing from the company, Funding Circle has seen a substantial growth in the number of investors too. In fact, Funding Circle’s investor base includes banks, other financial institutions, and more than 40,000 retail investors. Even the U.K. government is an investor.
As a small business owner, you can borrow any amount starting from $25,000 up to a maximum of $500,000. The maximum tenure allowed is five years and loans can be availed for business purposes such as expansion, hiring more people, buying new equipment, or launching innovative campaigns.
#2: Lending Club
Renaud Laplanche founded Lending Club Corporation in 2007 and the company has become a key player in the peer-to-peer lending marketplace over the years. As leading online lending marketplace, the company that connects borrowers and lenders has disbursed loans to the tune of $11,167,217,348 as of mid-2015. Lending Club provides loans for meeting various purposes such as personal needs (including debt consolidation, credit card payment, home improvement, etc.), starting or running businesses, patients’ needs (dental treatment, fertility treatment, and hair treatment, bariatric surgery, etc.), and even for making investments.
The minimum amount that can be borrowed is $1,000 for meeting personal needs and $15,000 for businesses. The maximum amount that they lend is $35,000 to individuals and $300,000 to businesses. This is the first publicly traded online peer-to-peer lending marketplace in the U.S. The company completed its initial public offering (IPO) on NYSE successfully in December 2014 and has a market capitalization of about $5.14 billion.
Upstart, a peer-to-peer lending website, was founded in 2012 by ex-Googlers Dave Giround, Anna M. Counselman, and Paul Gu. According to them, loan seekers are more than their credit score. On this website, rates are decided on the basis of the loan seeker’s education and experience. For determining loan eligibility, the online lender takes into consideration a number of factors other than your FICO score. These include the school you graduated from, your academic performance, your study and your work history.
The minimum amount you can borrow is $3,000 and the maximum is $35,000. The annual percentage rate or APR starts at 4.7 percent. They offer loans for just about everything. This includes repayment of a student loan, the fee to be paid for attending a boot camp, buying a car, paying medical bills, or supporting a business. Upstart is more popular among people in their 20s and 30s. This is because they cannot avail a loan from a traditional bank due to the fact that they do not have a credit history. However, they may have the potential to honor a commitment.
#4: CircleBack Lending
Loans are offered by CircleBack Lending for tenures of 3 or 5 years and amounts ranging from $3,001 to $35,000. The APR ranges from 6.63 percent to 36 percent. The actual rate at which a loan is given to a borrower depends on his/her credit usage, score and history; loan amount; and tenure. The platform is best suited for borrowers with a good credit history that needs higher amounts than the average loan amount.
Personal loans can be availed from CircleBack Lending for various purposes such as credit card refinancing, home improvement, debt consolidation, medical expenses, buying automobiles, weddings, buying engagement rings, starting a small business, relocation, vacation travel, and buying motorcycles or boats. Personal loans are extended to small business owners rather than the business itself.
#5: Prosper Marketplace
The peer-to-peer marketplace was created for the very first time in the S.S. by Prosper Marketplace, Inc. The company has registered tremendous growth since its inception and currently has a client base of more than 250,000. Prosper has disbursed loans worth more than $4 billion so far. It offers loans to individuals for meeting various needs such as debt consolidation, home improvement, and engagement ring financing, among others.
The company also offers short-term loans, bridge loans, vehicle loans, baby and adoption loans, small business loans, special occasion loans, military loans, and green loans. Individuals can borrow amounts starting from $2,000 to $35,000 for a period of either 3 or 5 years. Interest rates or annual percentage rates (APR) range from 5.99 percent to 36 percent. Prosper also allows lenders to invest as much as $25 per note. These investments provide competitive returns and even a monthly cash flow option.
Peerform was founded by Wall Street executives in 2010. This popular lending marketplace offers 3-year loans ranging from $1,000 to $25,000 with an APR of 7.12 percent to 29.99 percent. Peerform does not look at the FICO score alone in order to measure the risk of lending. The company’s Loan Analyzer carries out the evaluation on a case to case basis. According to Peerform, the Loan Analyzer was developed in consultation with leading economists and it follows a differentiated method for determining the creditworthiness of each borrower. As a result, even individuals whose credit scores are in the range of 600 may be able to secure loans. The purposes for which Peerform offers loans include debt consolidation, installation, wedding, home improvement, moving and relocation, medical expenses, and buying a car, among others.
SoFi was founded in 2011 and the company has earned a great deal of popularity over the years. SoFi focuses on helping young professionals in accelerating their success through student loan refinancing, mortgage financing, mortgage refinancing, and personal loans. As of now, SoFi has disbursed more than $4 billion in loans. The company follows slightly stringent eligibility criteria when evaluating borrowers. They look into aspects such as current and prospective employability, budget management, financial history, graduation school accreditation, and job experience, among other aspects.
SoFi’s offers loans starting from $5,000 and up to $100,000, which is higher compared to the standard amount of $35,000 offered by many other players in the peer-to-peer marketplace. Funding is provided for purposes like student loan refinancing, mortgage financing, mortgage refinancing, parent loans, parent plus refinancing, MBA loans, and personal loans.
The online Peer-to-Peer lending marketplace is of great help to borrowers who find it difficult to obtain loans from traditional banks. The greatest advantages enjoyed by the borrowers are easy access to loans at competitive rates and smoother and faster procedures.