7 Reasons Why a P2P Loan is Good News for “Bad” Credit

While many of us in the peer to peer lending world have the luxury of having extra cash to invest, the reality is that millions of people in our country struggle under the weight of bills and unpaid debt. Whether through a bad shopping habit or a sudden medical emergency, many people need access to cash but do not have good enough credit history to be approved for a personal loan from a bank.

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It can be difficult to find bank loans for people with bad credit, which usually require a credit score of 700+ for a personal loan. But if someone needs a loan whose credit score is in the 600s, what are their options?  For people in this situation, a peer to peer loan (p2p loan) can be truly wonderful news. This avenue of lending online, new to the nation, offers many people a way out.

Seven Reasons to Apply for a P2P Loan (Even With Imperfect Credit)

Seven reasons why peer to peer loans are helpful to people with less than perfect credit scores.

#1. Unlike a Bank Loan, a Smaller Footprint Means More Approvals

People across the United States often struggle to be approved for a personal loan if they apply through the branch of their local bank, even with solid credit history. This is because access to loans has become very tight (Bloomberg) in the past few years. Thankfully, peer to peer lending companies run leaner and more efficiently than banks do. They run almost completely through the internet and have less overhead. As a result, they are able to offer loans to people with lower credit than banks will allow. Prosper, for instance, approves loans for people who have FICO credit scores as low as 640.

#2. Unlike a Bank Loan, Accurate Assessments Mean More Approvals

Many people deserve a line of credit, but are denied for a loan because their bank does not have access to all the applicant’s information. They are gently informed they have “bad” credit, but this is often said by banks who are not seeing the whole picture. Peer to peer lending companies, in contrast, have a remarkable ability to more accurately judge whether someone is deserving of a loan. This is because they can electronically pull data from a wide variety of third-party sources to fully build a borrower’s profile. They do this while also looking at success rates of thousands of their past loans, and this gives them the ability to approve loans for many people who elsewhere be denied.

#3. Awesome Lower Interest Rates

pay day loansThe average American who is denied for a loan by their bank has few options left to them. Often their only option is to get a payday loan, but these types of cash-advance loans often have interest rates higher than 60%. This type of lending is so terrible and predatory that it has been outlawed in some states like Georgia. In contrast, peer to peer lending companies like Prosper issue loans to people with rates that are far more reasonable, sometimes as low as 6.8%.

#4. Unlike a Bank Loan, P2P Loans Offer Larger Loans (Up to $35,000)

I recently got off the phone with my local credit union. When I asked about the maximum loan amount they could offer me, they said it was $15,000. This is a common problem in our country. Often people need to pay off large debts like credit card balances and medical bills but struggle to find a loan large enough to cover the entire amount. Thankfully, peer to peer lending companies offer loans as high as $35,000, a number than should go up in the coming years.

#5. Unlike a Bank, P2P Loans Offer Quick Access to Cash

When applying for a line of credit at a local bank, the process can often take weeks at a time. Paperwork has to be faxed and phone calls have to be made. But peer to peer loans are mostly done over the internet. This allows the process to happy in a fraction of the time. Many people who apply for a loan often have the money deposited in their bank account within 10 days.

#6. Zero Prepayment Penalty

As further evidence that peer to peer lenders are cheaper and more efficient, they offer borrowers the chance to pay any loan off early without a fee. This often means p2p lenders lose a bit of interest, but it is a huge benefit for borrowers. Prepayment fees at banks can often be in the hundreds of dollars, yet loans at companies like Prosper can be paid off early without any penalty at all.

#7. Loans Come from Real People Across America

peopleThis reason has lost a bit of its appeal in the last few years, but I think it is still a big one: peer to peer loans are funded by people around the country. Borrowers may feel little connection to a bank that offers them a loan, but a peer to peer loan is often funded by a hundred lenders all working together. For some borrowers, this can give them a sense of dignity and responsibility for the cash they are entrusted.

For People With Imperfect Credit, Hope Remains

Peer to peer lending is a type of investing that is only just beginning to find legitimacy in the eyes of the nation. This is great news for people struggling under the weight of heavy debt, even those with less than excellent credit. Whereas before people were forced to become delinquent borrowers, they can now have a peer to peer loan consolidate their outrageous debt into one lump sum with a lower interest rate than before.

Unfortunately, most people in the United States are still unaware of peer to peer loans. Payday advance lenders are still making a killing by offering outrageous 60% rate loans to people who have no idea something better exists – something that sites like LendingMemo are trying to change. My hope is that the continued growth of the p2p lending industry begins to alter this harsh reality, bringing people who have imperfect credit the ability to finally get the loan they deserve.

Loans up to $35,000

Check your rate at both, go with the lower rate.

Won’t affect your credit score

[image credit: Cyril Fluck “Rusty Leaves
Rolands Lakis “Mother & Daughter
Eddie~S “Ohio Lottery and PayDay Loans” CC-BY 2.0]


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  1. says

    I agree with your assessment. Thanks to Prosper I could refinance my debt at a lot favorable interest rate and lower monthly payments. It is an excellent opportunity.

  2. Cheryl says

    I applied for a loan from Prosper and was denied because my credit score is 636, so they obviously do not help those with low credit scores. If my score was better, I would not be asking them for a loan to begin with.

    • says

      Thanks for your comment Cheryl. While some people with a FICO below 640 might be approved, anybody with a Scorex below 640 are declined. I think I should have made that statement more clear in my post. Furthermore, Prosper has said they’re switching to FICO this week, so I will reedit the article.

      Thank you for sharing your experience for all of us to hear. I am sorry you were declined.

  3. Johnny says

    Hi Simon,
    What happens to defaulters in p2p lending? Is there anything legally binding between lenders and borrowers with respect to default?

    • says

      Hi Johnny. If a borrower stops paying back their loan, they are handed over to a collections agency. They get many annoying calls and eventually a nasty mark on their credit score. However, these loans are unsecured, so borrowers do not lose their house or car, no matter what.

    • LJ says


      I understand your frustration. How can people with low credit scores (in the 500s) repair their credit if they don’t have the funds to do so.

      • says

        Everybody’s situation is different, but many get started by taking any extra income they can spare and paying off unpaid debt, starting with the smaller problems first. The road to credit recovery is often a long one. For many people it takes 10+ years, but in the end it is worth it since good credit is what allows us to start businesses and get a home mortgage.

    • says

      Having a score above 640 is not a guarantee for approval. There are other criteria like how often you have made late payments, your current income, and almost a hundred others. (most are unpublished)

  4. Shirley says

    I was also denied and was sent a letter saying my credit score was too low but at the end of the letter it said my credit score is 669! So go figure!

  5. Michael says

    I got a loan at 7% which is great since my credit card debt was at 22%! The process was easy. I now will have my cards payed off much more quickly. (they are paid off now, but I still owe Prosper) I highly recommend trying if your credit score is good enough.

  6. Nancy says

    I make $70,000 with no debts, but my credit scores were in the 600’s, one 682, one 644; however, it was denied. This is what I earned my master’s degree to get?

  7. Susan says

    I have loans through Prosper, Lending Club and now Upstart. I started with a credit card debt balance of upwards of $80k. I now have credit card debt of about $9k and it’s going down quickly. It was important to me to get more immediate cash flow so I made sure that my p2p loan payment was less than what I was paying on the credit cards…even if it was only $50 less a month. In addition to opening up cash flow, the credit card debt is being paid back in 3 years at much lower interest rates (from 29% in some cases down to 7 or 8). My credit rating was starting to slip quickly into the mid 650’s…it is now at 720 and climbing. P2P is not for everyone, but for some of us it is a great solution. Prosper and Lending Club were very similar processes-taking about a week each from application to money in the bank. Upstart has a couple of limitations like only being able to borrow $25k and the term is 3 years-no more, but the money was in my account in 3 days-over a weekend!

  8. Renee Perri says

    Can you apply at more than one of these P2P sites ? Or does that hurt your credit score like putting in applications with more than financial institutions the ‘ Normal way ‘ ? Just curious bc there are a few I pulled up when I found out about P2P borrowing when I was looking for a loan which I need for medical reasons , that I intended to pay back right away with a 401k plan my Employer set up for Teamsters only to get when you retire , quit or get fired. I have already retired on first April last month, just waiting for paperwork to update my employment status with the company I just retired from, however the process is taking much longer than I antisipated need to get on with this surgery bc even though retired from 1 company I’m going right back to work for another company. This 401 k is relititve small , under 10k , and dosnt have any bearing on my monthly retirement I will be drawing for life starting in only a few months bc of Teamster Status. I will be drawing monies from 2 areas and could pay for the loan payment monthly if approved through P2P but opted to draw this seperate money from my 401 k instead. Don’t want to put sparing remarks on credit score if filling out multiple apps will hurt my score as I’m trying to repair it.

  9. Susan says

    My credit score is slipping as I write this. I experienced a divorce , three years ago, when my FICO score was 759!!. Over the past year my ex husband, who earns $1.5 million dollars per year, stopped paying child support and alimony which was $12,000 per month. I live in our mutually owned home, which he borrowed without my knowledge before he left the children and me) therefore it is not underwater, but I cannot borrow against it.

    My attorneys have filed a motion to demand garnishment of my ex’s wages, but our court date has not yet been established. We believe it will be in three to four months. In the meanwhile I have bills to pay and our daughter is leaving for college (she received scholarships and loans as he refused to pay her tuition).

    I need help.


  10. Char says

    Hello I contacted the company you got the loan from about a loan after being denied from everybody. I have a question to ask did you have to pay fees to get the loan cause Mr. Desmond is asking me to pay fees and I paid the one fee now he asking for another fee. Is this true??

  11. Grace says

    We have a business that requires us to spend a lot of money on materials and supplies before the jobs can be completed.
    We have no credit accounts in order to operate due to mis handling by a bank that holds our house mortgage. Due to their claim that we owe them, our credit has gone from excellent to a score of a deplorable 580.
    We receive emails and calls from non-banking institutions that have run our credit and have said that they will loan us some money and then when we have half of it paid off, they will bump it to double. They also want to go into the account daily and take out payments.
    First they told us we qualified but they needed a little more information, then they sent us paperwork and said they also needed just a little more, then they said they could not fund..then we got an excited call that they could fund, but we needed to go through a 3rd party secure verification site, that I was to give them my user name and password so that they could access our account. RED FLAGS have gone off, is this a normal procedure? I feel I would be opening myself up to some real issues!
    We need some capitol because an excavator has broken down and rental fees are killing us. We need the funds to repair the excavator and get on with our work.
    What do you suggest? Is it normal for lenders to go directly into the account, can’t they just get verification through bank statements and a call to the bank or a VOD site?
    Thank you

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