App version: 0.1.0

Guide to Peer-to-Peer (P2P) Lending

Guide to Peer-to-Peer (P2P) Lending
Jason Steele
Jason SteeleUpdated February 24, 2025
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent, and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or network providers. Read more about our Editorial Guidelines and How We Make Money.
With peer-to-peer lending, borrowers can get loans from investors instead of banks. Although it may sound unusual, peer-to-peer (P2P) lending is popular around the world. The global peer-to-peer lending market was worth $176.5 billion in 2025 and is projected to reach $1,380.80 billion by 2034, according to Precedence Research.Here’s how P2P lending works, the pros and cons, and how to know if it might be right for you.

What Is Peer-to-Peer Lending?

Peer-to-peer lending does not involve traditional financial institutions like banks or credit unions. Instead, borrowers work with a private lender, which might be individual investors or businesses, to get a loan. P2P lending is done through an online peer-to-peer lending platform. Borrowers may benefit from P2P lending. For one thing, the qualifications for peer-to-peer personal loans are typically easier to meet than the personal loan requirements of traditional lenders. However, there are risks involved, and P2P lenders can be challenging to find.

P2P Lending Uses

Many P2P platforms offer unsecured personal loans, and these peer-to-peer loans may be used for a variety of purposes, including:
  • Debt consolidation – Combine multiple debts into one loan with a potentially lower interest rate.
  • Home improvement – Fund renovations, repairs, or upgrades to increase property value.
  • Medical expenses – Cover unexpected medical bills, procedures, or treatments.
  • Education costs – Pay for tuition, certification programs, or professional development.
  • Business startup or expansion – Invest in a new business or grow an existing one.
  • Major purchases – Finance big-ticket items like appliances, electronics, or furniture.
  • Auto repairs or purchases – Fix a vehicle or put a down payment on a new one.
  • Special events – Fund weddings, vacations, or other significant life events.
  • Emergency expenses – Handle sudden financial needs, such as home repairs or job loss.

How Does Peer-to-Peer Lending Work?

If you want to try peer-to-peer lending, the first step is to choose a P2P lending platform. Be aware that peer-to-peer platforms often charge fees. Examples of fees could include a loan origination fee or a late fee if you miss a payment. Next, you’ll fill out an application on the P2P platform. There may be a credit check involved, so it’s wise to know your credit score and how to read a credit report beforehand to make sure everything in your report is accurate. If you are approved for a loan, the platform will let you know what your interest rate will be. If your credit is good, you may qualify for a competitive rate, but those with poor credit may pay much higher rates.Lenders will then review your loan. If one or more investors decide to fund it, the money will be electronically transferred to you. You could receive your funds within one day. After that, you will begin repaying the loan monthly. 

Can You Get a Personal Loan From an Individual?

Yes, it is possible to get a personal loan from an individual investor through peer-to-peer lending. Investors in P2P lending can be individuals or companies. Sometimes your loan may be funded by several individuals.

Is P2P Lending Legal?

Peer-to-peer lending is legal, but it does come with some risks. As a borrower, while P2P platforms strive to protect your personal and financial information, it is possible that a hack could happen at some point. And, of course, you will want to work with a reputable peer-to-peer lender.There is risk for P2P lenders, as well. For instance, it’s important for peer-to-peer lenders to understand that these investments are not FDIC insured — which means the funds are not insured by the federal government the way they are with most traditional banks. If the borrower stops making payments on the loan, lenders might not get their money back. And the default rates for peer-to-peer loans are much higher than the rates of default on a personal loan from more traditional lenders. 

What Is an Example of Peer-to-Peer Lending?

An example of peer-to-peer lending is a borrower using a platform like Prosper to secure a loan directly from individual investors. The borrower applies online, investors fund the loan, and repayment is made with interest. This process bypasses traditional banks, offering competitive rates for borrowers and returns for investors.Like most unsecured personal loans, peer-to-peer loans can be used for a variety of purposes. This includes debt consolidation, home improvement, medical bills, and car repair. 

Peer-to-Peer Lending vs Bank Loans

The main difference between peer-to-peer lending and bank loans is the way the loans are funded. With peer-to-peer lending, the money comes from an individual or group of individuals. With a bank loan, the money comes from a bank, credit union, or other financial institution. Banks often have stricter qualification standards for loans and take longer to fund loans once they’re approved. Banks also may require you to apply in person. Peer-to-peer loan applications are done online.

Advantages of Peer-to-Peer Lending

Peer-to-peer lending has some benefits for borrowers. For instance, those with a bad credit score might qualify for a loan. The funding process may also be faster than with a traditional bank or credit union.

Disadvantages of Peer-to-Peer Lending

There are notable disadvantages to P2P lending, as well, including possible fees and higher interest rates.
P2P AdvantagesP2P Disadvantages
Borrowers with poor credit may be able to get a P2P loan.Borrowers could face a higher personal loan interest rate than they would with a traditional lender.
Once a loan is approved, the funding process can be faster than with a bank or credit union.There are often fees involved, including an origination fee.
Peer-to-peer lenders are becoming harder to find.

Finding P2P Lending Loans

Finding a peer-to-peer loan may take some work. There aren’t as many peer-to-peer lenders as there used to be. One that you may want to check out is Prosper, which launched in 2005, and was the first P2P lending marketplace in the country. It offers personal loans with fixed rates and terms from $2,000 to $50,000.

The Takeaway

Peer-to-peer loans might be a good option for borrowers who don’t want to work with a bank or those with a low credit score. However, peer-to-peer loans do come with risks, and finding a peer-to-peer lender could be difficult since there are fewer of them. A borrowing alternative you may want to explore is a traditional personal loan. If so, Lantern by SoFi can guide you through the process. Just fill out one simple form and in minutes, you’ll get offers from multiple lenders in our marketplace. 

Frequently Asked Questions

What is a peer-to-peer lending example?
What are the risks of peer-to-peer lending?
What are most P2P loans used for?
Photo credit: iStock/Charday Penn
LNTPL-Q125-046

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
Share this article: