Chances are, you’ve got debt. Most people do, and it's a beast of burden for many. In the best of all possible worlds, all loans, and lending institutions would be created equal in their treatment of investors and borrowers.
Unfortunately, this is not the case. Refinancing and consolidating debt can be extremely beneficial in lessening the load of high interest debt, making up over 70 percent of all consumer loans in the United States. However, whereas banks have a predilection to over-lend at a premium, peer-to-peer lenders aim to maximize successful loan repayments, and investor returns on interest.
This article briefly explains P2P lending and then reviews the best peer-to-peer lending services that you should consider for 2017 investing/borrowing.
Peer-to-Peer Lending Review
As of 2015, peer-to-peer lending companies and platforms offered an average savings of 6.8 percent on borrowers interest rates as opposed to traditional banks. The industry of peer-to-peer lending is built on delivering a lower rate of interest for borrowers than banks can, and a higher rate of return for investors in a reliably stable market, as opposed to the volatile stock market.
This is made possible because of the non-centralized business model, which the industry of peer-to-peer lending has made possible. Peer-to-Peer Lending Companies, or P2P Lenders, all operate from an online platform, instead of opening hundreds of physical locations, all over the country.
By utilizing an online business platform, peer-to-peer lenders are able to save millions of dollars a year on overhead costs, employee expenses, and physical infrastructure costs. P2P Lenders pass these savings on to borrowers and investors, making for lower interest rates than banks, and easy access to credit.
P2P Lending Comparison
The industry of peer-to-peer lending, is comprised primarily of consumer credit and student loans. The vast majority, if not all, peer-to-peer loans are unsecured.
The largest peer-to-peer lenders in the industry are Lending Club and Prosper. Prosper was the first P2P lending company to operate in the United States, followed shortly after by the opening of Lending Club. Lending Club remains the largest P2P lender in the United States, based on the publicly reported loan volume, and revenue. Lending Club also holds the title of largest peer-to-peer lender in the world.
The volume of loans which have been borrowed to date, between the two largest lenders in the industry, amounts to over two hundred thousand loans and over two billion dollars, in all.
While many peer to peer lending companies offer services in the United States, Lending Club offers some of the highest returns on loans that are graded highly and Prosper is the most reliable for low default rates on all of their graded loans. No matter what platform you choose to borrow from or invest in, the key to financial success is diversification.
As compared to the stock market, entering the P2P lending world as an investor is easier and less volatile. Investing in P2P lending offers higher returns for investors on a regular basis than that of other conventional investments. Here's a quick video that explains why that is:
When you invest in a P2P company, investor’s principal investment is diversified over many hundreds of loans administered by the particular lending company. Setting up an investing profile takes less than a day's time and an individual can invest with as little as $25. Once an individual is invested in a loan, they will begin receiving payments, usually within thirty days.
The companies who have reported statistics showing the highest rate of return with the least risk, per investment portfolio, are Lending Club, Prosper and Funding Circle.
Best P2P Lending Sites
- Lending Club
The world's largest peer-to-peer lender, Lending Club has issued over twenty billion dollars in loans, since their inception in 2007. Lending Club offers consumer loans in addition to small business loans, and medium sized business loans. Loans are granted under a fixed repayment term of 36 or 60 months in length.
Started by a group of former Google employees, Upstart is the best peer to peer lending company for young adults. Upstart uses a process of vetting potential borrowers, which serves to consider more than just one's credit score. Upstart considers education level, academic performance, the major(s) one has studied, as well as their work history. Upstart is great for borrowers without much of a credit history.
- Funding Circle
Operating in the United States and the United Kingdom, Funding Circle is the best peer-to-peer lender for small business loans. Funding Circle knows small business needs, because they started from the ground up. They have funded over a billion dollars in loans over more than eight thousand business loans. Investors in Funding Circle are comprised of retail investors, financial institutions and even banks and governments. This one is not for the beginner investor.
- Prosper Marketplace
The original and first peer-to-peer lender to operate in the United States, Prosper is a close second to Lending Club for the second largest P2P lending club in the world. Prosper is the best P2P lending company for first time investors. With Prosper’s online platform, investors can invest as little as $25 per note.
Loans begin at two thousand dollars and go up to 35 thousand. Loan repayment terms are offered between three year terms and five-year terms. Prosper's loan options are vast, from debt consolidation, to short term bridge loans, auto loans, small business loans, home improvement financing, wedding loans, and many more consumer loans.
Founded in 2011, SoFi has become a household name in the peer-to-peer market lending industry. SoFi is the best P2P lender on the market for early stages of professional financing. Whether it is investing in professional tools, or taking out a loan to continue educational goals, SoFi offers options for those in their early financial life.
SoFi offers higher amounts of loans for qualified borrowers, but not exceeding 100,000 dollars. SoFi judges a borrower's risk by looking into their current or prospective employability, history of finance, and budget management over time.