Peer to peer loans can be a lower-cost alternative to bank loans and credit cards. But make no mistake – fees still apply along with your interest payments. P2P lending platforms are for-profit businesses after all, so knowing the fees you pay will help you understand your true borrowing costs before you list your loan.

Origination Fees

The two main peer-to-peer lending sites – Lending Club and Prosper – charge no fees to apply for a loan. But both sites do charge an origination fee once you receive the loan. Your APR consists of your interest rate plus the origination fee, which is based on the deemed default risk of the borrower. Prosper and Lending Club apply their own criteria in determining an applicant’s default risk, which encompasses factors like credit score, loan amount, loan term (usually 36 or 60 month), loan purpose, and credit usage and history.

As of December, 2012, Prosper charged its top rated borrowers a .5% origination fee, its 2nd tier borrowers pay 3.95% and the lowest-tier pay 4.95%. Lending Club’s origination fees range between 1.1% to 5%.

So if you’re a high-risk borrower seeking a $15,000 small business loan, you may expect to pay on the order of $750 in origination fees. “High-risk” is a relative term, though, since both Prosper and Lending Club allow only borrowers with a good credit score – a minimum of 640 to 660 – to even list on their site. If you come out on the low-end, you could pay both a high interest rate – possibly over 20% – plus a higher fee to the p2p lending platform.

Additional Fees

Other, smaller fees may apply as well. Both P2P loan providers charge $15 for unsuccessful payments (checks bounce, bank funds not available, etc.). And late fees will kick in typically after a 15-day grace period. Late fees are typically the greater of 5% of the unpaid installment amount, or $15. Prosper and Lending Club don’t profit on the late fees, which are sent directly to the investors.

One of the nice things about Lending Club and Prosper is that they are up-front and transparent with the fees you could expect to pay up. When you’re approved to list your loan on the lending sites, you’ll know your APR. But if you’re looking for a sizable loan, and your credit score is not impeccable, expect to pay a little extra for your peer to peer loan.