WTF is P2P Lending?

Peer to peer lending, or P2P for short, is banking without a bank. Borrowers apply for loans in the same way they would through a traditional bank, but the loans are funded by personal investors. Who is a personal investor? You, if you want to be.

Investing

P2P loans are sold to you in smaller increments, typically $25, so that you may spread your risk around. It's been said that $2,000 is the magic amount to invest to see profits right away, but you can invest as little as $25 on some sites. Your profits come from the interest payments on the loans you have funded.

On every site I checked out, you could either choose your own loans to fund or let the platform choose for you. You'll want a mix of loans with high and low interest rates -- the low interest rates will be paid back at a higher rate than the high interest ones.

The returns have been pretty sweet at just around 10% since P2P really took off in 2013. In other words, if you invest $2,000 in several 3-year loans with a 10% return you will earn around $660. That is heads and shoulders above parking your money in a standard savings account and earning just $76 with that same amount of time and effort.

Borrowing

P2P borrowing is great for customers who aren't able to access fund in the traditional way. Banks don't really do personal loans anymore, credit unions often require years of membership before you can be considered, and credit isn't easy or cheap to get these days. P2P lending has grown by leaps and bounds in the past few years and they are all competing for your business. You can check your rate and get a quote in moments at each site and compare offers.

There are a million financial sites that aggregate sites and offer their personal take on the fees, regulations, and requirements of each -- but beware! Lots of these sites are either sponsored by a P2P site or are earning money when you click through.

As with any loan, make sure you're financials are in as much order as they can be before applying.