A peer-to-peer auto loan provides an attractive alternative to car dealership financing. They allow you to shop like a cash buyer and they're unsecured, meaning there are no restrictions on the year or model of car you buy.

Visiting the dentist. Financing a car. Playing golf somewhere that isn’t Top Golf. These are things we Millennials dread. Thankfully, for the middle scenario at least, there’s a lesser-known strategy that can alleviate stress and minimize debt.

Let’s look at a realistic scenario for car-shopping in your 20s: You make a decent living, but don’t have much savings, thanks to outstanding student debt, the high cost-of-living in your city, etc. Your embarrassing college beater is falling apart, so it’s time for a new car.

You deserve something nice and appropriate for a young professional, so you’re looking at the ~$25,000 bracket. You find the perfect car in the perfect color. So what are your options for getting the keys?

Traditional options for buying a new car

  • Pay cash. Always the best option, but not realistic right now. With your liquidity, the best mode of transport you can afford is a camel. A sick camel.
  • Lease. Eh, since you read our article on the top five cars from 2013 cheaper to finance used than lease new the idea of leasing has become unattractive. Why borrow something for an exorbitant rate when you can own the gently-used version for even less?
  • Secure a bank loan. With interest rates and ridiculous prepayment fees, a $25k car quickly becomes a $28k car.
  • Borrow from an auto lender. Medical emergency or job transition and you can’t make your auto payment this month? Your lender can send two armed thugs to repo your ride, without the courtesy of leaving behind your USB charger.

In short, the traditional options for leasing or financing a new car are about as appealing to under-30s as watching a Steven Seagal marathon at Applebee’s.

There must be a better option, and there is.

The better option: Peer-to-peer auto lending

Peer-to-peer auto lending is like the AirBnB of auto loans. With high enough credit, you can borrow the cash you need to buy your car outright and pay back your private benefactor over time, typically saving money in the process.

How it works

Sites like Lending Club will prompt you for basic information (name, address, email, etc.) and ask how much you need (up to $40k). With a healthy credit score, you should be approved right away (check your credit score here).

You’ll then be prompted to pick a loan that fits your monthly payment/interest preferences, and voila, funds are automatically deposited into your account.

How is a peer-to-peer loan different from a loan from a bank or auto lender?

Peer-to-peer loans operate by different rules that make life a little easier for you, the borrowing party.

Peer-to-peer loans are unsecured

Banks and auto lenders can legally repo your car if you fall behind on a payments. Peer-to-peer loans are unsecured, meaning your car isn’t at risk of an inglorious repo.

What is at risk of course is your credit score, so be sure to pay on time.

They enable cash shopping

Dealers love monthly payment plans, using them to confuse you with math, slip in extra fees, and raise the cumulative price. Having cash on hand nullifies these tricks and grants you serious negotiating power. A pretty pile of cash is also a great tool for starting a bidding war between dealerships vying for your business.

There are no pre-payment penalties

Ask anyone with student loans; being blocked from or even penalized for trying to pay off your debt early is nothing short of infuriating.

Thankfully, with peer-to-peer auto lending, you can pay off your principal as soon as you’re able (which you should).

Get a promotion at work? Finally pay off your student loans? Wipe out your outstanding payments and enjoy your first debt-free cruise.

There’s a little less interest

According to Lending Club, borrowers on the site report paying an average 24 percent lower interest than they were paying on other forms of debt.

You get to stick it to the man

This is a small and subjective factor, but you may just feel better borrowing from a real-life investor instead of a predatory lender or big bank. Your interest may directly fund somebody’s retirement or child’s college fund.

Why shouldn’t you choose a peer-to-peer auto loan?

Peer-to-peer auto loans are indeed pretty sweet, but they’re not for everyone. Here are two reasons they might not be right for you (yet):

Your credit score is below 640

With a low credit score you become a higher risk in the eyes of peer-to-peer investors, who will either reject you outright or charge you high interest rates to compensate.

If you have low credit, strongly consider modeling after these four success stories of people who fixed their bad credit before considering a high interest loan.

You’re borrowing for the wrong reasons

If you’re shopping for a crossover, the Mazda CX-5 is the sensible choice, but the Porsche Macan is so tempting You work hard, you deserve it! Plus, what’s an extra $25k to borrow if you get to drive a Porsche?

Not so fast; borrowing outside of your means puts your credit score at risk, not to mention how luxury cars can be significantly more expensive to insure and maintain as Hondas and Toyotas.

What are the next steps?

Even if you feel that a peer-to-peer auto loan may be perfect for your needs, there’s car-shopping homework you need to complete before initiating the loan process:

Check your credit score first

Again, if your credit score falls below 640 you may be met with high interest rates, so taking time to improve your credit score before applying for a loan could save you thousands.

Determine how much you need to borrow

How much should you really spend on a car? A go-to rule is 35 percent of your annual income. However, you may see cars as necessary evils or indispensable pleasures. Depending on your viewpoint, follow the link to our handy spending calculator.

Test drive every car you’d consider owning

There’s no reason to skip this step, because arguably the most important aspect of a new car is how it makes you feel.

If you like a certain car, test drive its competitors. Personally, I test drove 22 cars before settling, and ended up strongly disliking four cars that I loved on paper.

Carmax is quite friendly to prolific test drivers, allowing you to test several cars per hour with no sales pressure.

Visit Lending Club to apply for a loan

The process is pretty straightforward from there.

We’re big fans of peer-to-peer lending at MU30. We welcome the fresh approach to the stale, arduous process of auto-lending, and celebrate any innovation that makes “adulting” just a little bit easier.

Checkout our Lending Club review or apply today!


Peer-to-peer auto loans are an amazing way to buy the car you really want. If you have good credit and want to avoid paying a high interest loan to a big bank—or worse, a car dealer—visit Lending Club to apply for a loan!

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