Peer-to-peer lending with bad credit, how does it works?

Whether for paying an overdue debt, saving a business from bankruptcy, or for emergency use, loaning money is sometimes the probable option.

There’s no shame in being a borrower as long as you are a Lannister by nature who always pays their debts. 

However, borrowing money isn't as easy if the bank trusts you enough to know that you have a bit of ugly credit history.

Furthermore, they would need to thoroughly check and verify your bank statements plus your payment history. It entails long processes and approvals, which can feel stringent and run you out of patience, especially when you need extra money fast.

Your credit score would also play an essential role in whether financial institutions will grant you a loan or not.

Speaking of credit scores, what happens next if you don’t pass any of those requirements? Can you still borrow money?

Thankfully, you can now borrow money even if you have a low or bad credit score.

Enter peer-to-peer lending with bad credit. It's a non-traditional way of loans, a more straightforward and faster way to get money. Here's how.

Related content:

• How to Build Excellent Credit Score- 9 Proven Ways
• 32 Realistic Ways to Save Money Very Easily Without Giving up Too Much

How to start peer-to-peer lending?

Peer-to-peer lending is among the best alternatives you can do, and it functions the same as its name.

In simple words, you borrow money to direct people or investors (peers). There's no bond contract or relationship, just pure transactional business.

Think of it as if you're borrowing money from your friends or relatives. Only this time, you can do it online and even with those you haven't met or don't know. More likely, it has a community-based approach.

Hence, it paves the way for you to connect to individuals who have the capabilities to lend you money, regardless of bad credit.

Some lenders would even consider peer-to-peer lending as an investment due to the rising potential users.

Therefore, they can earn substantially high interest from said platforms. It has also made it much easier now to loan through this way.

First, the lender opens their account through an app (or on a website).

Then you will need to fill out some basic financial profile and information. It will help to determine your capabilities to pay. It would also allow the system to decide the interest rate that would be fair to you.

After creating an account, the lender will then start depositing money so you can loan them.

Next is the funding stage. The lender would have to review your financial profile. If they trust you enough, they will provide you with the exact amount of money you need.

Multiple lenders could be your investors; it depends on their limits in lending and the amount you need.

Do you need to have a good credit score for peer-to-peer lending? 

A good credit score is an advantage in applying for loans. Moreover, it will help you provide reasonable interest rates that will not abuse you as a borrower.

Credit scores also provide lenders with a clear overview of your credit risk. In other words, credit scores tell an individual's creditworthiness.

But to be very clear, a credit score is not the only determining factor in peer-to-peer lending with bad credit. It will also depend on the type of loan you’re getting and its amount.

But more importantly, every lender has its criteria in determining the reliability of a borrower’s credit score (even banks and established financial institutions)

Furthermore, based on this information, it will be up to them to label you as a good or bad borrower.

It helps to provide lenders with a faster way to have fair credit decisions. Yes, it may come off as a bit complicated, but it should be easy to understand once you've got a hold of the purpose of credit scores.

Two commonly used systems in determining credit scores are the FICO Score and VantageScore Solutions.

Read more: 12 Smart Ways to Pay Off Debt Fast and be Debt Free.

FICO Score

Known to be the oldest (since 1989) and among the most widely used credit score systems, the FICO Score is considered the industry leader in the world of peer-to-peer lending.

It uses numbers ranging from 300 to 850. For industry-specific FICOs known as FICO Auto Scores, the scores range from 250 to 900.

There are also FICO Bankcard Scores and FICO Score 9, which are all used for the same purpose: to help lenders evaluate your capability to pay debts and the appropriate interest rates to apply.

Ultimately, a higher score means higher chances of getting a loan as the system acknowledges you as a good borrower.

The most commonly used interpretation is that if you scored below 580, you fall under the bad credit score. It is because it's below the average score and gives an impression to lenders that it would be risky to provide you loans.

However, from 581 to 900, any score above this is considered exceptional and says a lot about your creditworthiness.

VantageScore Solutions

In 2006, this company generated credit scores and developed a tri-bureau model by three of the USA's national Credit Reporting Companies (CRC) known as Experian, TransUnion, and Equifax.

They offer various scoring systems with their scales, but they consistently determine credit scores, unlike other commonly known scoring systems. So it is through using calculations from a single model based on the three CRCs mentioned above.

Aside from that, VantageScore Solutions is free. Hence many people are attracted to use the service platform.

Another thing that makes it appealing is that their system can give your credit score even if your account to any of the CRCs above is just six months old or less.

At first, they used systems that generated scores from 501 to 990. The latest updates, VantageScore 3.0 and 4.0, now use the same range as FICO, which is 300 to 850.

Again, it depends on you as the lender to determine whether an individual’s credit score is good or bad. But since VantageScore uses the same range now, we can deduce that you can also use the same score range to determine if a borrower is credible enough to get a loan.

Quickly getting approved in getting financial loans no matter the amount and gaining competitive offers from lenders would help if your credit score is consistently high.

Hence, buying that new car you’ve been eyeing could be your motivation to increase your credit score.

Getting a higher credit score would take time, depending on many financial factors, including improved credit history.

So if you happen to have a low or bad credit score despite your efforts, don’t fret! There are multiple companies out there that offer peer-to-peer lending with bad credit.

What are the different platforms for peer-to-peer lending with bad credits? 

As previously mentioned, peer-to-peer lending is much easier to do than traditional loans from financial institutions. But, again, it is due to governing regulations.

However, even if you have bad credits, you may still loan through peer-to-peer lending without needing to pay unfair interests.

With that, you would still have to be vigilant and careful in selecting the online website or application you want to use to loan money.

Additionally, with tons of apps promoting peer-to-peer lending, it's easier to get lost. Hence, we’ve broken down for you three (3) of the most trustworthy apps you could try today.

Lending Club

The Lending Club has been the longest peer-to-peer lending company so far, which started operating in 2007.

You can get any loan here with a max of $40,000. However, it usually takes a minimum of 2 to 4 working days to obtain the money once a loan agreement has been set due to the numerous processes it has to undergo.

But, they're very much open to accommodating borrowers even with bad credits, as it would be the lender's choice to do so.

There is a minimum requirement of a 600 credit score to become an approved borrower.

Among the criteria is you also must be a US Citizen who has met the loaning policies of your state, except for West Virginia and Iowa, which don't allow Lending Club.

Once you’ve met said qualities to become an approved borrower, multiple lenders may start offering you their terms and conditions, including the interest rate to apply for loaning.

Rest assured that there are no application fees in becoming a borrower at Lending Club, but a verifiable bank account is a must-have.

Peerform

In 2010, Peerform was among the top peer-to-peer lending companies to get multiple loans, including an installment loan.

Having the privilege to make payments on weekly or even monthly intervals is a big plus point, especially for borrowers who usually have a hard time growing their money. The loan amounts could range from $4,000 to $25,000 with fixed rates from 5.99% to 29.99% APR (annual percentage rate).  

Same with the Lending Club, they also require a minimum of 600 credit score to start loaning with a debt-to-equity ratio that should be below 40%.

Upon visiting their website, you can easily apply by choosing the loan that suits best your need then interested lenders will contact you for fundings.

Moreover, an origination fee of 1% to 5% applies, but the APR is lower compared to other companies that offer peer-to-peer lending with bad credit. Additional fees apply, such as check processing fees, late payment fees, and failed payment fees.

Upstart

Applying at Upstart is another option that you can choose if you need peer-to-peer lending with bad credit. The loans range from $1,000 to $50,000, with interests from 8.27% up to 35.99% APR.

Aside from that, they also offer 3 to 5-year terms, and you can receive funds the next day! It's a company that works with various banks and credit unions to provide consumer loans while considering the borrower's overall capacity to pay apart from looking at credit scores.

It includes the borrower’s age, employment, and educational background. They successfully developed a system that analyzes such factors, allowing you to maximize the opportunities loaning could offer. Plus, they’re pretty new to this platform as the company started just in 2012.  

It works like this: you will post on their website indicating the amount needed and your loan purpose.

Again, it is the lender’s discretion to consider you based on your given financial information.

However, Upstart specifically targets borrowers with low credit scores. This sets them apart from usual peer-to-peer lending companies, although a credit score of 600 would still be ideal.

Related: How To Stop Living From Paycheck to Paycheck – 10 Realistic Tips

Key Takeaways

Although a good credit score can indeed lead you to better loaning opportunities, many online platforms nowadays are open to help you if you happen to have a bad credit history.

You have to ensure that your financial profile is stable enough for lenders to consider.

Going for peer-to-peer lending is a wise option both for the borrower and the lender.

It’s a win-win situation; the borrower could use the money instantly for numerous purposes after getting approved while the lender earns substantial interest. Moreover, the returns are high for both since being a lender makes you an investor who helps borrowers grow their financial status.

Although peer-to-peer lending with bad credit has its perks, it can also be precarious.

As the lender, you are transacting directly to an individual who happens to have some financial difficulties, which led them to this option. It’s considered an unsecured loan as there is no collateral involved.

As a borrower with bad credits, remember that paying on time and setting achievable goals could make a considerable difference to attain stable financial security. Aside from improving your credit score, it can further lead to a stress-free life. 

Make it a habit to pay in full and on time.