What is Marketplace Lending?

Marketplace lending is any online platform that lets you quickly compare lenders, rates, and loan offers. Complete the entire application on your phone in minutes.

Updated: July 19, 2023

Marketplace Lending: How It Works?

In the ever-evolving world of fintech, marketplace lending has emerged as one of the best new ways to access capital fast. Marketplace lending is an alternative lending model that lets you compare a wide variety of lenders through a streamlined online platform. You can quickly select and apply for loans online without ever having to step foot in a physical bank location. Because it puts so many options at your fingertips, online lending gives you a higher degree of control and flexibility than traditional lending ever could. 

In this article, we’ll talk about what marketplace lending is, why it’s become so popular in the lending market, and how you can get marketplace loans to suit your needs.

What is marketplace lending?

Marketplace lending is a method of connecting borrowers with lenders. It takes place on online platforms, which means the entire loan search process only takes a few minutes. All you have to do is input a few details, including your desired loan amount, loan purpose, income, and credit history. The platform then matches you with relevant loan offers. Borrowers can use marketplace lending to find everything from personal loans to mortgage refinancing loans.

Marketplace lending is slightly different from peer-to-peer lending (P2P). Both use online platforms to match borrowers with potential lenders. However, marketplace lending traditionally connects borrowers with financial institutions like traditional banks, credit unions, and online loan companies. P2P lending is a specific subset of marketplace lending. It connects borrowers directly with individual investors.

Marketplace loans vs. traditional loans

Marketplace lending differs from traditional lending in a few key ways.

  • Efficiency and transparency: With traditional banking, borrowers must contact each financial institution separately and fill out individual prequalification forms. This can take serious time and effort. But with an online marketplace, borrowers only have to fill out a single form. Within seconds, the platform’s algorithm will present you with all the loan offers for which you prequalify.

  • Inclusive funding opportunities: If you have a sub-par credit score or a choppy financial history, it can be tough to get a loan from a traditional lender. With an online marketplace, however, you can quickly sort for loan providers willing to work with borrowers like you.

  • Range of loan options: With a lending marketplace, you’ll have access to all kinds of lenders. That includes institutional investors like traditional banks and credit unions, as well as non-bank institutions with modern, streamlined funding models. As a result, you’ll have a wider range of loan terms and interest rates to choose from.

  • Costs and fees: Traditional loans, especially from brick-and-mortar banks, can be more expensive than online loans. That’s because traditional financial services institutions often have high administrative costs to cover. Marketplace lending, on the other hand, can help you find online lenders with low-cost operations. As a result, you’ll likely find more affordable options through a marketplace than you’d find through traditional lenders alone. 

The pros and cons of marketplace lending

The pros of marketplace lending for borrowers include:

  • More options: If you’ve had a hard time getting loans from traditional banks — either due to a low credit score or to biases in the financial industry — you may be more likely to find more affordable funding through marketplace loans.

  • Speed of processing: Marketplace lending is so streamlined that you could prequalify for loans, compare options, complete the loan application process, and receive your funds all within a few business days.

  • Lower rates, better terms: Marketplace lending creates competition among lenders, incentivizing them to offer lower rates and better repayment terms to attract customers.

  • Smaller loans: You’re more likely to be able to apply for loan funding amounts of less than $10,000 through an online marketplace.

The cons of marketplace lending for borrowers include:

  • Limited personal support: While marketplace lending is fast and efficient, the online interface means there’s no opportunity for face-to-face help. If you have a unique situation or need someone to talk you through the various loan options, you may prefer to work with a traditional lender.

  • Unclear fees and charges: While marketplace lending platforms are typically free to use, individual lenders have different fee structures. You’ll still have to examine each one to understand what you could end up paying in origination fees, late fees, and prepayment penalties.

  • Potential for predatory lending: Marketplace lending is a relatively new industry. That means there’s still some room for bad actors to sneak in. Always carefully evaluate all loan offers and read disclosures to screen for predatory lenders.

Should I borrow a marketplace loan?

If you’re thinking about borrowing through an online lending marketplace, here are some points to consider:

  • Credit score: If you have a good credit score, you’ll likely qualify for great rates both through marketplace lending and through traditional lenders. If you have a bad credit score, however, marketplace lending may be able to provide you with better options. That’s because some online lenders are willing to consider alternative measures of creditworthiness beyond your FICO score during the underwriting process. 

  • Interest rates: Before you begin your loan search, take a look at federal reserve interest rates to get a benchmark idea of national rate trends. Compare this benchmark to what marketplace lenders are offering to make sure you’re getting a fair rate. (Keep in mind that if you have a low credit score, your rate offers may be well above the federal reserve rate.)

  • Personal finances: Any time you consider taking on debt, take a hard look at your finances. Make sure you can afford the monthly payments on your new loan.

  • Privacy and security: Marketplace lending is a new industry. Since you’re dealing with two entities, not just one, you need to understand the terms and conditions for both the lending marketplace and the direct lender you choose. Read customer reviews and testimonials to get a sense of the platform’s reputation, and check out their privacy policies and disclosures to understand how they protect your financial information.

Where can I find marketplace loans?

You can find marketplace loans through an online lending marketplace. Navient Marketplace1 is one of the industry’s top platforms. We work with Fiona, a powerful online loan comparison tool, to connect you with various lending options in seconds. When you submit your personal information through the Navient platform, Fiona uses those details to match you with customized loan offers from top lenders like LendingClub, SoFi, and Prosper.

Navient Marketplace, in partnership with Fiona, is a great source for all kinds of consumer loan products, including:

●       Personal loans to cover home improvement projects or emergency expenses

●       Debt consolidation loans

●       Auto loans and auto loan refinancing

●       Student loans and student loan refinancing

●       Mortgage refinance loans

Navient can also connect you with auto, home, and life insurance options, as well as top high-interest savings accounts and credit card offers.

Compare loans on Navient Marketplace

If you’re looking for a consumer loan, a personal loan marketplace is one of the best places to start your search. Navient Marketplace collaborates with Fiona, a leading personal loan search tool, to help borrowers access fast funding at affordable rates. Explore your options and find personalized loan rates by visiting our marketplace today.

1Navient may receive compensation when you click on links associated with this Navient Marketplace. Navient is not being compensated for any application, quotation, or the purchase of any financial products

 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

 

Information in this blog, including the rates advertised. are current as of 05/26/2023 and subject to change. For current rates, please visit https://marketplace.navient.com/.

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