Understanding online marketplace lending

Shopping around with multiple lenders can help you find a better personal loan rate, and using an online lending network — also called a loan marketplace — makes that process easy.

These types of lenders enable you to check out multiple loan options at once, all online. Using a network lets you quickly compare loan options and potentially secure the best loan for your needs.

Online lending networks vs. direct lenders vs. peer-to-peer lenders

When working with direct lenders, you submit separate applications to each lender. In the case of a network or peer-to-peer lender, you submit one application to be shared with many potential lenders.

Online lending networks usually allow you to compare rates and terms from several partner lenders at once by submitting a prequalification application. Prequalifying for a loan allows you to preview potential rates and terms without affecting your credit. After you prequalify, you’re matched with potential lenders that meet your desired loan amount and terms.

Peer-to-peer lenders work similarly, except that instead of banks, credit unions and online lenders, your information is shared with multiple private investors.

By comparison, direct lenders only allow you to apply for a loan with one lender at a time. Some allow you to prequalify, while others only provide a formal loan application, which involves a hard credit check that can affect your credit score.

Pros and cons of online lending networks

Before choosing a personal loan through an online lending network consider the advantages and disadvantages of the process.

Benefits

• Ability to compare loan options all in one place. Unlike traditional loan options, with a network, you can compare loan APRs, terms and fees from one view.
• Broad view of available lenders. Many networks have relationships with a wide range of lenders catering to all credit score levels, loan amounts and loan types.
• Lower risk of denial. Because the network has a firm grasp on your credit you will not waste time applying for loans you might not get accepted to.

Drawbacks

• No face-to-face support. There is no ability to arrange in-person customer service. This is especially notable for those who may be unfamiliar with the borrowing process.
• Security risk. Although most networks have strong security and are legitimate, it is possible to come across loan options that may not be reputable. Be sure to only enter personal information on trusted sites.
• Lack of history. The online lending space is comparatively new. You may be matched with a lender you've never heard of before, making additional research into its reputation necessary.

How to get a loan with an online lender network

Using an online lender network to secure a personal loan is similar to applying for any personal loan. While every network varies slightly, there is an overarching basic process you can expect when applying for a personal loan through an online lender network.

1. Submit an online form and application

On the lender’s website, you will need to fill out some information on yourself, your finances and your need for a loan. At this point, you should also prepare for a soft credit check, as the network will use your credit to match you with the best loan options you qualify for. Some may inform you they use a hard credit check instead, which could temporarily lower your credit score by about 10 points.

2. Review loan options

After the network sees your needs and credit score, it will match you with one or more lenders. You can then determine which loan option is best for you. Pay close attention to available rates, any restrictions on the amount you can borrow and the term.

3. Choose your loan

After determining which lender best fits your needs, you will likely be sent to that lender’s site where you can take the final steps to secure your loan. Depending on the lender, you could get your funds in just one business day. After receiving the loan, signing up for automatic payments is recommended so you never fall behind.

Who is an online lending network best for?

An online lending network is best for those who are interested in handling the entire personal loan process from home and feel confident in navigating websites.

Marketplaces’ long lists of partners make them an especially good option for those with bad credit. While borrowers with strong credit have a wide range of loan options, those with poor credit may find the search harder. By applying first through the network you can avoid the frustration of denial as you will only be presented with financial institutions that can cater to your needs.

The bottom line

It is hard to look past online lending networks’ convenience. The process is fairly straightforward and can take much less time than working with a loan officer in person or researching multiple lenders individually. Consider this option as a first step on your personal loan journey.