From Justin Pritchard,
Your Guide to Banking / Loans.
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Peer to peer lending allows you to skip the bank and borrow from individuals. You can borrow from complete strangers or just use peer to peer lending services to structure loans between friends and family. This page covers how peer to peer lending works, the major services, and how you can take advantage of it.

Cutting Out the Bank

When you participate in peer to peer lending, you’re cutting the bank out of the equation (and replacing it with your P2P service). Banks have their place in the world, but sometimes your best bet is to borrow elsewhere. Peer to peer lending gives you another option for secured and unsecured loans.

• Unsecured Loan - Definition

Peer to Peer Lending Services

The peer to peer lending marketplace is quickly growing. You can read about some of the major players in detail:

• Prosper.com - the original eBay for loans
• Lending Club - lenders and borrowers find something in common
• Virgin Money - borrow from friends and family but make it official

Rates

Borrowing via peer to peer lending usually means you can borrow less expensively. Banks have more overhead than some guy on the internet, and they have to pay for it somehow. Peer to peer lending services also allow individuals to bid on your loan. They compete by offering a lower rate.

• How APR Works

Credit Issues

You’ll need decent credit to get a decent loan. The peer to peer lending services check your credit as part of your application – and they tell potential lenders how good your credit is. Likewise, if you fail to pay off the loan as agreed your credit will suffer.

• How Credit Scores Work
• How Credit Bureaus Work

Logistics

In most cases the peer to peer lending service handles all the logistics of your loan, including:

• Deduct payments from your bank account
• Send money to the lender
• Provide a website and customer service
• Verify identities for regulatory compliance
• Communicate with credit bureaus

The loan terms vary, but in most cases you have a fixed rate amortizing loan that lasts less than 5 years.

• How Amortization Works