How to Qualify for Peer-to-Peer Loans

No wonder peer-to-peer loans (or "P2P loans") are taking off in this country. Consumer borrowers and lenders can often both benefit from better rates than they'd get from their banks or elsewhere. Qualifying for a P2P loan requires many of the same steps you need to take to get approved for any other borrowing. But there are some differences, so here are five tips.

1. Jack Up Your Credit Score

P2P lending sites are going to check your creditworthiness, just like other sources of borrowing do. So, if your need isn't urgent, you should monitor your credit score for months in advance, and do all you can to improve it. Do your best to pay off every overdue account, and make sure you pay all your bills on time. It's also important not to apply for other credit soon before you list on a P2P site: Every application you make reduces your score a bit and it takes a while to get your number back up. By the way, those facilitating peer-to-peer loans tend to use "soft" credit inquiries, which means that -- unusually -- your initial request for a listing is unlikely to impact your score.

A P2P site typically gives you a credit rating that's visible to potential lenders, and that may be your credit bureau score adjusted by an internal proprietary algorithm. But don't be fooled: Your credit score is absolutely vital in three ways:

  1. It helps determine whether you'll be allowed a listing. The two biggest sites want to see a minimum of 640 or 650.
  2. It's going to influence the interest rate you'll pay.
  3. It's almost bound to affect how readily lenders agree to fund your loan.

2. Be Realistic

One of the two biggest P2P sites says that "borrower listings with low loan amounts are funded more often than listings with high loan amounts." That doesn't mean you shouldn't apply for a big loan (the Big Two cap personal loans at $35,000) if you need one. And it's important that you borrow enough to meet your needs, or you may find yourself too short of funds to keep up payments. But the lower the amount you borrow, the better your chances of success.

Of course, this becomes doubly important if your credit is less than excellent. While many people with credit scores in the higher 600s get P2P loans, not many of them (probably none of them) are likely able to borrow large amounts.

3. Stay on the Ball

The P2P site is definitely going to ask you for supporting documentation, and it may also pose some questions. Respond promptly, fully, and honestly to stand the best chances of seeing your loan funded quickly.

It's a good idea to have that documentation ready before you make your initial application, if only so you avoid panicky searches through old boxes when the time comes. Expect at the very least to be asked for pay stubs and bank statements.

4. Invest Time in Your Narration

You'll probably have an opportunity to tell prospective lenders a bit about yourself and why you want the loan. This doesn't need to be a long essay, but it's worth spending a bit of time on it.

Put yourself in the lenders' shoes, and imagine what might appeal to them. You can't lie, but it's a good opportunity to highlight your strengths as a borrower. And don't forget to check your spelling and grammar!

5. Consider Accepting Partial Funding

"Partial funding" is when sufficient lenders have agreed to invest enough to cover a big part of your loan, but you're still short of the full amount. You may be given the option of accepting what's available rather than hanging around in the hope other lenders sign up.

Whether that's a good or bad idea is going to depend on your personal circumstances, but it's something to think about.

None of these tips guarantees approvals on peer-to-peer loans, but taken together they can significantly improve your chances of qualifying.

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