Peer-to-peer lending, also known as P2P lending, is an online system in which individual investors fund loans (or part of a loan) to individual borrowers. Peer lending, also known as market lending, is a growing alternative to traditional lending.

Borrowers and lenders can benefit from this loan system. For example, some borrowers may find personal loans rejected by other lenders. And peer-to-peer lending platforms can be a great alternative to invest in a club for some.  

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Depending on your loan, you may qualify for a competitive interest rate. But people with lower credit ratings tend to see higher interest rates — sometimes even higher than the annual credit card average.

While there is still a risk, investors can get better returns on P2P loans than some other savings and investment options.

The credit market can also help small business owners. The US Small Business Administration says that "co-lending can be a viable alternative to small business financing".

How do co-loans work?

Loan affiliates use online software to match lenders with potential borrowers. Features vary from platform to platform, but you will find a lot in common. LendingClub, Prosper, and Peerform are the same lenders.

This is the process when you want to borrow money-

  • Fill out the application, which may include a credit check.
  • See what your interest rate will be if you are approved. If you want to advance, you can take out a loan from the financing stage.
  • Wait for investors to review the loan list and decide if they want to fund it.
  • Enter the repayment phase when your loan is successfully funded. You will make regular payments throughout the life of the loan.
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