A peer-to-peer lender may advertise a certain annual percentage rate range, but your creditworthiness influences your rate. If you think you'll pay down the loan early, then look for lenders that don't charge prepayment penalties. A longer loan term comes with a lower monthly payment but higher interest costs. Each marketplace also offers different repayment terms, usually between three and six years. Does the marketplace charge origination fees, late fees or other fees? Fees increase the cost of borrowing, but you might find a lender that limits them. Researching the lender or prequalifying can help you see whether you meet those thresholds before applying. Check the marketplace's minimum credit score, income and debt-to-income ratio requirements. If minimum or maximum loan amounts don't work for your needs, you may need to check out a different marketplace. Your creditworthiness will affect how much you can borrow. These vary with each lender and may range from about $1,000 to $40,000 or more. How will you use the P2P loan, and does the lender allow that purpose? Contain hard inquiries to 14 days, and they will count as one inquiry on your credit report, regardless of whether lenders use FICO or VantageScore credit-scoring models. Do not spread out your loan shopping to avoid damaging your score with hard credit inquiries. "Very often, whomever is servicing the loan doesn't have options, or few options, to help that consumer," says Jim Triggs, president and CEO of nonprofit credit counseling agency Money Management International. You might not receive the same type of support that you would get from a bank if you take out a loan but later can't make your monthly payments. Fewer financial hardship options from P2P lenders.The lower your credit score, the higher your rate. Your rate depends on your credit score and your peer-to-peer marketplace. Higher interest rates than traditional lenders.That's an extra $400 on a $5,000 loan or $400 off your loan funds. Origination fees may cost 1% to 8% of the loan amount. You could have to pay fees, such as an origination fee, on top of interest charges. Most marketplaces report your payments to the credit bureaus, but double-check before you apply for a loan. Making on-time payments to your peer-to-peer lender can help you build a credit history and improve your credit. "The traditional banking system has always been slower, and there's more paperwork." "Peer-to-peer lenders have a much better, streamlined process for borrowers to get to money, usually within a day or so," van Faassen says. Quick cash compared with some traditional lenders.If you have a strong credit history, you may qualify for lower rates than what traditional lenders offer. The soft inquiry means your credit won't take a hit while you shop for a loan. You can often prequalify using a soft credit pull to check your chances of approval and estimate loan terms. Marketplaces can offer more flexibility because they "don't necessarily hold the risk they are matchmakers," says Rutger van Faassen, innovation and new markets, industry ecosystems executive at data provider Curinos. P2P marketplaces are usually open to everyone, including borrowers with short credit histories, low credit scores or high DTI ratios. More flexible qualification requirements than other types of loans.
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