Personal Finance

What Are Peer-to-Peer Loans and How Do You Get One?

27 January 2026

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While most personal loans are funded by a bank, credit union or online lender, peer-to-peer lending lets you borrow money directly from an individual or group of individuals.

Aside from who provides the funding, peer-to-peer loans operate just like traditional personal loans. You apply online, and the lender sends the money to your bank account in a lump sum, if approved. Peer-to-peer loans have fixed interest rates, and you repay the debt in monthly payments, typically over a few years.

Here’s what to know if you’re considering a peer-to-peer loan.

What are peer-to-peer loans?

Peer-to-peer loans, also known as P2P loans, connect borrowers and investors directly. The lending is typically facilitated by a financial tech (fintech) company that provides a platform for getting a loan.

Though not as common today, peer-to-peer loans became popular after the 2008 financial downturn when many traditional banks’ lending requirements tightened. Peer-to-peer loans often have less stringent borrowing requirements, which may be ideal for borrowers with bad credit (scores under 600). However, P2P loans offered to borrowers with bad credit may have interest rates on the higher end of the lender’s range.

In addition to individual investors backing P2P loans, peer-to-peer lending has evolved to include institutions like hedge funds or insurance companies providing funding too.

How to get a peer-to-peer loan?

To get a peer-to-peer loan, you usually follow the same process as you would to get a personal loan online.

Pre-qualify. The first step is to pre-qualify with a peer-to-peer lending company. Pre-qualifying checks your eligibility for a loan and involves a soft credit pull that doesn’t impact your credit score.

To pre-qualify, you provide a bit of personal information and details about how much you want to borrow and how you’ll use the money. If you meet the lender’s qualifications, you get a preview of the annual percentage rate and loan terms you could be eligible for.

Apply. If you like the loan offer, then the next step is to apply, which you can do online. After you apply, the peer-to-peer lending company will likely conduct a hard credit check to confirm factors such as your credit score and credit history. That hard credit check will likely lower your credit score by a few points.

Get funded. Once you’re approved for the loan and sign the loan agreement, the lender can fund the loan. Funding could be as soon as the next day. However, it may take longer to fund a P2P loan than traditional personal loans, since applications for peer-to-peer loans might be reviewed by multiple investors.

Where to get peer-to-peer loans

Prosper is one of the only peer-to-peer lending platforms operating in the United States. It offers unsecured personal loans from $2,000 to $50,000. Borrowers can use the money for a wide variety of purposes, including debt consolidation or home improvement projects.

Annual percentage rates for Prosper loans range from 8.99% to 35.99%, and repayment terms range from two to five years.

To qualify for a Prosper loan, you must have a credit score of at least 560 and a debt-to-income ratio no higher than 50%, not including mortgage payments. Prosper says it also factors in non-traditional criteria, such as rental payment history and bank transactions, to make approval decisions.

If you’re approved for the loan, your origination fee may be up to 9.99% of the loan amount. Loans are typically funded within one day.

Peer-to-peer loans for small businesses

If you’re an entrepreneur and need to borrow money for your business, iBusiness Funding and Kiva are peer-to-peer lenders that offer small-business loans.

Kiva offers microloans to businesses that are open to crowdfunding while iBusiness Funding may be better suited for established businesses that want to expand

🤓 Nerdy Tip

A loan from a lending circle is similar to a peer-to-peer loan, because the loan is funded by individuals rather than a bank or financial institution. However, you don’t just borrow money and pay it back over time if you’re part of a lending circle. Participating in a lending circle requires you to make regular contributions to a shared pool of money. The collective funds are then loaned out to each member of the lending circle one at a time.

Pros and cons of peer-to-peer loans

Pros

You may be able to qualify with fair or bad credit.

You don’t have to have an existing account at a specific bank or credit union.

Cons

The loan may come with an origination fee, which typically ranges from 1% to 10% of the loan amount and is often deducted before the lender disburses the funds.

There aren’t many lenders offering P2P loans.

Alternatives to peer-to-peer loans

Many banks, credit unions and online lenders offer personal loans that range from about $1,000 to $50,000 with repayment terms from two to seven years. Rates range from 7% to 36%, with lenders often relying on a loan applicant’s credit score to determine approval and the loan’s interest rate.

Zero-interest credit cards

It’s important to note that you may need to have good or excellent credit (a score in the mid 600s or higher) to qualify for a zero-interest credit card. After the promotional period ends, the card’s APR can increase to nearly 30%.

Payday alternative loans (PALs)

Some federal credit unions offer payday alternative loans, or PALs, which allow credit union members to borrow up to $2,000 with APRs capped at 28%. Repayment terms can be up to 12 months long.

This borrowing option provides access to smaller loan amounts than some traditional personal loans and lower rates and longer terms than payday loans. You may be able to qualify with a less-than-stellar credit score, but you will need to be a member of a credit union that offers PALs.

A family loan could be a low-cost option for borrowing money without strict requirements or any third-party involvement.

Mixing family and money could sour your relationship, however, if the loan isn’t paid back as planned. Creating and signing a loan agreement may help both parties stay on the same page about the expectations for repayment and the consequences of defaulting on the loan.

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