Person to Person Lending Guide

person to person lendingIn 2011, we saw banks completely shut down credit lines, homes were foreclosed and interest rates were raised.  It really was a war-zone for a while.  What if I told you that you don’t have to rely on banks for lending?!

Banks are not the “end all” for every type of situation.  Yes, they’re useful under certain circumstances, but you really don’t “need” a bank.

So, what if you get stiff armed by a bank?  What do you do?  Where do you go…

Well, this is where person to person lending comes in, also known as peer to peer lending.  At it’s core, it’s exactly what it means.  A person has cash sitting around and would like to make some additional interest on their money.  So, that person would lend their money to someone in need.  As a return the borrower would pay interest to the lender.  It’s as simple as that.

Don’t know where to start?  You can head over to Lending Club or Prosper and get an account. Both are excellent companies with a long track record.  Both offer personal loans with interest rates that rival big name banks!  I personally haven’t used either of these companies but my friend Peter from Bible Money Matters has.  You can check out his experience with Lending club here.

So, what are these two companies all about?  It’s actually pretty simple how they work.  If you are a borrower, you can apply for a personal loan.  If I was a lender I would agree to loan out my money or pass up on an offer.  Once the agreed amount is set in stone and the person has enough lenders, the full loan amount is given out and the borrower makes monthly payments.  It really is a cool concept and opens p doors for small businesses to get the loans they need or for people to skip out on banks for smaller loans.


What borrowers need to know

If you’re seriously interested in taking out a personal loan, the first step is to fill out an application. You’ll be asked about your credit history, how much you want to take out, and the reasons you want a loan.  it’s all pretty straightforward stuff.  The flexibility of a person to person loan is greatly beneficial for someone starting a business or even paying off a college loan!  In terms of loan schedules, a typical contract length is 3 years.  However, a five year loan is now becoming more and more common.  Once your loan is approved you can transfer the money you requested and start making payments to your lending site.


What lenders need to know

These types of sites make it so incredibly easy to become a lender and be successful at it.  You can lend as little as $25 and make your own decision on which borrower to lend your money to. Both Lending Club and Prosper provide a wealth of information on the people you’re lending money to.  Like all things in life, there is a risk of being a lender: the borrower could default on your loan.  Although this is rare if you do the proper research, you shouldn’t be surprised if it happened. All in all, being a lender is awesome because you’re making money off of other people.


Who can get a person to person loan?

There are some basic requirements to get a peer to peer loan.  They’re pretty basic:

-Must be a US citizen

-Ownership of a valid bank account

-Be of at least 18 years of age

-Have a social security number


Applying for a person to person loan

So now that you’re ready to apply for a personal loan, what’s next?  On either site, you’ll have to open an account where you will input your basic information like email address and contact info. Once this step is complete, you will be checked for good credit.  Have all pertinent information ready just in case you’re asked for it.  Once a loan is approved, you can easily transfer the money into your personal checking or savings account.  It really is as simple as that.  Peer to peer lending companies want to make it clear as to what you need to do to get a loan approved.  It’s a win-win if you get approved for a loan!


What are the benefits with person to person lending?

The benefits are too great to list out here but person to person lending is a wonderful way to get capital fast when you need it most.  This is an especially great route if you have some high interest credit card debt.  Instead of paying 15% interest on a credit card, you could be paying it off with a low interest loan from one of the lending companies mentioned above!

At the end of the day, peer to peer lending provides an excellent opportunity to avoid banks and manage your money the way you want.

Again, here are the only peer to peer lending companies that I recommend to Free Money Wisdom readers:


Lending Club



What are your experiences with person to person lending?  Please comment below!