While traditional lenders turn consumer deposits into loans, peer-to-peer (P2P) lenders use capital from investors. The P2P business model allows individuals and institutions to tailor their risk tolerances to borrowers’ credit scores, and the dynamic increases your chances of obtaining a loan. For example, borrowers with bad credit often incur higher APRs. And this happens because the lower your credit score, the higher your perceived probability of default. However, since some P2P investors have higher risk tolerances than direct lenders, they’re willing to extend bad credit financing to earn a higher rate of return. As a result, P2P lenders often provide funding when others won’t.
There are only a few bad credit P2P lenders in the marketplace, so your choices are slim. However, our bad credit personal loan guide reviews more than 20 lenders with 35.99% or less APRs. Also, some don’t charge loan origination fees. Furthermore, we also reviewed 25 alternative lenders that offer better products than payday loans. So don’t settle for a 400% APR if you have poor credit.
Our marketplace also lists dozens of products for borrowers with bad credit. Moreover, applying does not require a commitment and won’t impact your credit score. As a result, it’s prudent to shop around, and doing so increases your chances of landing the best deal.
Best Peer-to-Peer Lenders for Bad Credit of April 2024
Companies like Upstart and Happy Money provide P2P loans that meet your and investors’ objectives. Therefore, the business model satisfies both parties and helps fill the void between traditional and alternative lenders. Moreover, our list also includes loan comparison sites because they offer P2P loans. However, some also provide standard personal loans and alternative loans, so their networks have many products.
Terms: Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
Although educational information is collected as part of Upstart’s rate check process, neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.
The full range of available rates varies by state. A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.44% and a 8.64% origination fee of $864, for an APR of 22.88%. In this example, the borrower will receive $9136 and will make 60 monthly payments of $257. APR is calculated based on 5-year rates offered in March 2023. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
If you accept your loan by 5pm EST (not including weekends or holidays), you will receive your funds the next business day. Loans used to fund education related expenses are subject to a 3 business day wait period between loan acceptance and funding in accordance with federal law.
While most loans through Upstart are unsecured, certain lenders may place a lien on other accounts you hold with the same institution. It is important to review your promissory note for these details before accepting your loan.
When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.
The APR calculation compares the two models based on the average APR offered to borrowers up to the same approval rate. The hypothetical credit-score only model used in Upstart’s analysis was developed in connection with the CFPB No Action Letter access-to-credit testing program and was built from a traditional credit score only model trained on Upstart platform data. APR for the scorecard was averaged for each given traditional credit score grouping.
While automated recurring payments are easy to set up, payments by check or one time electronic payments can also be used to repay a loan. Borrowers have the flexibility to choose the repayment method that works best for them.
This information is based on actual borrowers as of 4/1/2023 who identified “credit card refinancing” as their primary use of funds and paid off at least 51% of their outstanding credit card debt within 3 months of taking out the loan. Out of these actual borrowers, some could have experienced an increase or decrease in their credit score. This information reflects the overall average change in credit score points experienced by this group of borrowers as identified above.
The majority of borrowers on the Upstart marketplace are able to receive an instant decision upon submitting a completed application, without providing additional supporting documents, however final approval is conditioned upon passing the hard credit inquiry. Loan processing may be subject to longer wait times if additional documentation is required for review.
Upstart is a P2P lender that lets you borrow $1,000 to $50,000, with APRs of 4.6% to 35.99% and terms of three to five years. The minimum credit score to qualify is 300, and applying won’t impact your credit profile. Upstart’s technology is unique because the company uses artificial intelligence (AI) and alternative data to assess credit risk. Metrics like your education and job history carry more weight in the analysis, and these variables can help offset a low credit score. As a result, Upstart is one of the best P2P lenders for bad credit.
Loan minimums vary by state, with Georgia ($3,100), Hawaii ($2,100), Massachusetts ($7,000), New Mexico ($5,100), and Ohio ($6,000) having higher floors. Upstart’s disclosures also state that the average APR for a five-year loan is 23.98%.
In addition, loan origination fees range from 0% to 12%, and late payment fees of 5% of the amount due, or $15, whichever is greater, often apply. The company’s insufficient funds fee is $15, and its paper documents fee is $10 per request.
Pros:
Upstart offers P2P loans of $1,000 to $50,000.
Competitive APRs range from 4.6% to 35.99%.
You can repay the funds over terms of three to five years.
Upstart’s use of AI and alternative data increases your chances of approval.
Borrowers in all states should be able to apply.
Applying does not impact your credit score.
Cons:
You incur a loan origination fee of 0% to 12%.
You incur a late payment fee of 5% of the amount due, or $15, whichever is greater.
A $15 insufficient funds fee may apply.
A $10 paper documents fee may apply.
There are higher loan minimums in some states.
The impact of COVID-19:
If you need to pause your loan payments because of the pandemic or due to other financial difficulties, you can submit an online request through Upstart’s website. In addition, you can also call the lender at 1-855-451-6753.
PersonalLoans
Loan Amount:
$1,000 – $35,000
APR:
5.99% – 35.99%
Min. Credit Score:
580
Approval:
1 Day
Terms:
90 Days – 6 Years
Fees:
Loan origination fee of 1% – 5%
You may incur late payment fees after 15-day grace period
Most lenders don’t charge prepayment fees
Qualification Criteria:
Be at least 18 years of age
Have a credit score of at least 580
The maximum DTI ratio is often 43%
Have recurring employment income or government benefits.
Do not have a pattern of late payments, bankruptcies, or charge offs
Fill out your information through PersonalLoans’ online portal
Average Borrower Profile:
PersonalLoans connects borrowers with personalized financial product offers from banks and other lenders
If you have bad, fair, good, or excellent credit, financing options are available
PersonalLoans is a comparison site that partners with P2P lenders. Its extensive network also helps you obtain personal installment loans and personal bank loans. Lenders on the platform offer $1,000 to $35,000, with APRs of 5.99% to 35.99% and terms of 90 days to six years. You can apply in minutes, and qualified applicants see a list of suitable options. Also, PersonaLoans notes that most borrowers apply for P2P loans “due to lower rates.” However, the site has products for most credit scores, so borrowers with bad credit can still apply.
PersonalLoans has a minimum credit score requirement of 580 for standard personal loans. However, you need a minimum credit score of 600 to qualify for P2P loans. You also need to be employed or self-employed with a minimum income of $2,000 per month. Also, lenders’ loan origination fees range from 1% to 5%.
Pros:
Lenders on PersonalLoans’ platform offer $1,000 to $35,000.
Competitive APRs range from 5.99% to 35.99%.
PersonalLoans’ search function makes it easy to find affordable loans.
PersonalLoans’ services should be available in all states.
Applying does not impact your credit score.
Cons:
You incur a loan origination fee of 1% to 5%.
Late payment fees vary by lender.
The impact of COVID-19:
Since PersonalLoans is a comparison site, it doesn’t issue loans directly. Moreover, the lenders on PersonalLoans platform determine their deferral and forbearance policies independently. As a result, you need to contact your lender directly to determine the available options.
Happy Money
Loan Amount:
$5,000 – $40,000
APR:
5.99% – 24.99%
Min. Credit Score:
550
Approval:
1 – 7 Days
Terms:
2 – 5 Years
Fees:
Loan origination fee of 0% – 5%
There are no late payment fees
There are no application fees
There are no prepayment fees
Qualification Criteria:
Be at least 18 years of age
Have a credit score of at least 550
The maximum DTI ratio is often 43%
Have recurring employment income or government benefits
Have no current delinquencies
Have a credit history of at least three years
Fill out your information through Happy Money’s online portal
Happy Money offers bad credit P2P loans. You can borrow anywhere from $5,000 to $40,000, with APRs of 5.99% to 24.99% and terms of two to five years. The minimum credit score requirement is 550, and there are no application, prepayment, or late payment fees. Moreover, loans send directly to creditors receive APR discounts of 0.25% to 1%. Therefore, Happy Money is one of the best bad credit P2P lenders for debt consolidation.
Loan origination fees range from 0% to 5%, and you have to borrow at least $5,100 in New Mexico and $6,100 in Maryland. In addition, Happy Money does not issue loans in Massachusetts or Nevada. Furthermore, you can’t have any delinquencies, and you need a credit history of at least three years to qualify.
Pros:
Happy Money offers P2P loans of $5,000 to $40,000.
Competitive APRs range from 5.99% to 24.99%.
APR discounts are available for debt consolidation loans.
You can repay the funds over terms of two to five years.
There are no application, prepayment, or late payment fees.
Applying does not impact your credit score.
Cons:
You incur a loan origination fee of 0% to 5%.
You can’t borrow any less than $5,000.
You can’t have any delinquencies, and you need a three-year credit history.
Loans are not available in Massachusetts or Nevada.
The impact of COVID-19:
Happy Money has relief programs that can help borrowers dealing with COVID-19 disruptions or other means of financial hardship. To inquire about the available options, you can call Happy Money at 1-949-346-8740 or send an email to success@happymoney.com.
What Are Peer-to-Peer (P2P) Loans?
Financial institutions borrow from depositors at lower interest rates and lend at higher interest rates. The net interest spread is a bank’s profit, and the institution aims to repeat the process as many times as possible without encouraging too many defaults. Similarly, online personal lenders partner with traditional banks, and while the Fintech companies approve and service the loans, your funds often flow to and from a brick-and-mortar institution.
Conversely, P2P lenders get their capital from an investment group, individual, or group of individuals. So a bad credit P2P loan can be funded by one or 100 (or more) investors, with each party owning a slice of the interest and principal payments. And this allows P2P investors to diversify their risk across several P2P loans while also helping borrowers obtain the financing they need. As a result, while P2P lenders still handle the approval process and service the loans, the real money flows between you and the P2P investors.
Can I Apply If I Have Bad Credit?
Yes. While only a few direct P2P lenders offer to fund borrowers with bad credit, Upstart may provide the highest chance of success. For example, the online lender has a minimum credit score requirement of 300, and its AI-powered algorithm emphasizes your education and job history more than your credit score. As a result, new technology makes it easier for bad credit borrowers to obtain P2P financing and avoid payday loans.
Since investors and not depositors fund P2P loans, individuals can lend based on their risk tolerances. So a risk-averse investor may only lend to borrowers with credit scores of 700 or more. Therefore, his underwriting standards are similar to traditional banks. In contrast, a risk-seeking investor may lend to borrowers with credit scores of 500 or more, believing that the higher potential return is worth the risk. And since investors with similar risk tolerances can pool their money together to fund bad credit loans, a hundred investors can lend $100 each and only risk a small amount of capital to provide a $10,000 loan. Conversely, a traditional bank has to lend the entire $10,000 from its deposit base, which can be too risky.
Overall, P2P lenders make it easier for borrowers with bad credit to obtain affordable loans. And since applying won’t hurt your credit score, submitting multiple applications is the best way to get the cheapest rates.
Are Bad Credit P2P Loans Similar to Standard Personal Loans?
Yes. P2P and standard personal loans have similar uses and restrictions. For example, you can’t use either product to pay tuition or repay student loans, and gambling is most likely prohibited. In contrast, P2P and standard personal loans help finance home improvement projects, medical emergencies, debt consolidation, automotive repairs, funeral expenses, vacations, weddings, and unexpected emergencies like floods/acts of nature. As a result, both products are similar, so our advice is to shop around and choose the loan with the lowest interest rate and origination fee.
Do Personal or P2P Lenders Approve More Bad Credit Borrowers?
It varies by lender. But under most circumstances, P2P lenders offer higher chances of approval because direct lenders have stricter qualification criteria and standardized guidelines. Therefore, you may get disqualified if the lender uncovers red flags in your application. The reason for this is that personal lenders operate as a single entity. As a result, their capital comes from one place, and it’s more challenging to diversify their credit risk.
In contrast, P2P lenders can slice up loans among several investors, which allows the latter to diversify their positions. So if an individual is uncomfortable with lending $10,000 to a high-risk borrower, a group of lenders can share the credit risk and loan a few hundred dollars each. And this increases your chances of approval.
Also, Upstart is a well-known P2P lender. And with a minimum credit score requirement of 300, the company helps connect you with investors with higher risk tolerances. So Upstart may be more willing to work with you than other lenders.
However, since inquiring doesn’t hurt your credit score, the best strategy is to apply to multiple lenders. You can select direct lenders, P2P lenders, loan comparison sites, credit unions, and banks. And by doing so, you can analyze several offers and choose the one that fits your needs.
The Pros and Cons of Bad Credit P2P Loans
Bad credit P2P loans are similar to standard personal loans, so many of the same good and bad qualities are present.
Pros:
You can borrow a significant amount.
APRs are lower than alternative loans and payday loans.
Repayment terms are more extended than alternative loans and payday loans.
Minimum credit score requirements start at 300.
Bad credit P2P loans let you consolidate high-interest debt.
You can obtain a bad credit P2P quote in a few minutes.
Some bad credit P2P lenders don’t charge loan origination fees.
Bad credit P2P loans are unsecured and don’t require collateral.
Repaying the loan on time helps rebuild your credit.
Cons:
Only a few P2P lenders cater to borrowers with bad credit.
Standard personal loans often have higher borrowing limits.
P2P loans often have fees.
Approval is not guaranteed.
Why Did We Select These Lenders?
While we analyzed more than 100 companies, only a few direct P2P lenders and loan comparison sites had minimum credit score requirements low enough to qualify as bad credit. Moreover, our guide focuses on personal loans and excludes alternative and cash advance P2P loans. However, if you click on the links, you’ll find exhaustive lists and reviews of different products that may fit your needs.
Conclusion
Bad credit P2P loans are innovative products that help borrowers avoid alternative and payday loans. Since several investors with high-risk tolerances can fund a single bad credit borrower, P2P loans allow investors to diversify their risk. And the business model helps more borrowers receive funding. Moreover, P2P loans are comparable to standard personal loans, and both products share many of the same great qualities. As a result, there is little reason to settle for payday loans, given the options available in today’s marketplace.
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