Peer to Peer Lending
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How to apply for P2P lending
While each peer-to-peer lending company is unique, the application process generally looks something like this:
- Complete a preliminary application. Fill out some personal information online, and describe how you intend to use the loan. The form generally takes only a few minutes to fill out.
- Receive a borrower rating based on your application and your credit score. The application process usually involves a soft credit check, which doesn’t ding your credit score.
- Review your loan options. If you qualify for a loan, you have the opportunity to look over the different terms of available peer-to-peer loans and select the one that best suits your needs.
- Wait for investors to consider your application. At this stage, you receive notification that one or more investors are interested in funding your loan, or you find out that your loan hasn’t been funded. Don’t worry; investors make decisions quickly. In fact, the entire loan approval process typically takes about a week, unless the lender has to request additional documentation from you.
- Complete a full application. If investors commit to funding your loan, provide the lending company with additional details regarding your finances, as well as specified documentation to verify your identity, income, and employment.
- Receive loan approval. If all the information you supplied checks out, the loan you requested is most likely approved at this point.
- Get your money. Within a few days, the amount you’re borrowing – less the origination fee – is deposited in your bank account. The exact timing depends on your lending. Lending Club, for example, says the entire process typically takes seven days but “in some cases it can take a little longer” if they need to ask the borrower for additional information or documents.
- Prepare to pay off your loan. Once your loan term begins, your lending company will automatically withdraw your monthly repayment amount from your bank account until the term of your loan ends.
Why it pays to shop around for a peer-to-peer loan
You already know that shopping around for a loan may be necessary if one lender flat out turns you down. But you should seriously consider checking out a number of options even if you are approved.
When you compare your options across two or more P2P lending sites, you’ll find different loan options and a variety of investor pools. Remember: Your interest rate is dependent upon a number of factors, including your credit score and loan term. And every lending company has its own way of determining how risky you are, so one might view you more favorably than another.
When you do shop around, keep a few rules of thumb in mind:
- Make sure you’re working with a company that’s been in a business for at least a few years and offers you access to a large pool of investors. With more than $31 billion borrowed and 1.5 million customers, LendingClub is currently the largest peer-to-peer lending site. Other major players include Prosper, Peerform, Upstart, and Funding Circle.
- Do your research. Check with the Better Business Bureau, and read customer reviews to make sure that the companies you’re considering are above board.
- Make sure that the P2P lender operates in your area. Many lenders are limited to certain countries and don’t do business in a handful of states.