Johner Images/Getty Images

Johner Images/Getty Images

State banking commissions have a big say over the ability of peer-to-peer lenders (P2P) and others to operate in their states, and state securities commissioners can regulate whether investors can invest in P2P loans in their states.

The burden is on the lender to stay within the rules, and these restrictions will pop up on their website as you apply to be either a borrower or an investor.

For example, a personal loan from Prosper is not available to borrowers in Iowa, Maine and North Dakota. Lending Club doesn’t offer member loans in Iowa.

Loan size

Some states have loan minimums, while others have loan maximums. With Prosper, the minimum loan amount is $6,001 for Massachusetts residents. Residents of Pennsylvania have a maximum loan amount of $24,999 if they take out a loan with Social Finance, or SoFi. Lending Club borrowers may request member loans in amounts, ranging from $1,000 to $35,000.

Fixed- vs. variable-rate loans

Not all P2P lenders offer variable-rate loans. Not all states allow variable-rate loans.

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A variable-rate loan shifts the interest-rate risk to the borrower, because the interest adjusts when the interest rate to which the loan is pegged (or priced) goes up or down.

For example, SoFI’s variable-rate loan is pegged to the 1-month LIBOR index and adjusts monthly. SoFI’s variable-rate loan currently has an interest rate cap of 14.95%. Its variable-rate loans are not available to residents of: Arkansas, Colorado, Connecticut, Hawaii, Kansas, New Hampshire, Oklahoma, South Carolina, Texas, Virginia and Wyoming.

Length of loans

Most personal loans have a term of 3 to 5 years. Some P2P lenders will offer a 7-year loan term. While a longer loan term results in a lower monthly payment, it also means you’re paying more in total interest expense. You need to be able to afford the monthly payment to keep up your credit history and credit score.

Loan purpose

The online lenders ask what you’re going to use the money for when you’re shopping loans. For example, Prosper doesn’t allow members to use loan proceeds for investing, paying for college, financing illegal activities or gambling.

Maximum interest rates

States can limit the maximum interest rate a lender can charge on a personal loan. According to SoFi’s website, the maximum interest rate on loans for residents of Arkansas, New Hampshire, Oklahoma, Texas and Wyoming is 9.99% annual percentage rate.

Prepayment penalties

It’s typical for a P2P lender not to charge a prepayment penalty if you pay off your loan early. That makes refinancing a personal loan possible should your credit improve and/or the loan balance shrinks to a point where you can get a lower interest rate.

Origination fees

Some P2P lenders charge a loan origination fee. Others do not. If your lender does, that can increase the amount of money you need to borrow.

The loan origination fees are included in the calculation of a loan’s APR, letting you compare APRs across lenders to see which lender has the lowest interest rate.

Restrictions on who can invest in P2P loans

Not everyone can invest in the personal loans offered by the P2P lenders. In some states, investors have to meet the requirements of an accredited investor. In other states investors just have to satisfy minimum financial suitability standards and not exceed maximum investment limits.

Have you bumped up against state limits in trying to borrow or invest in P2P loans?

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