If you're like most people, you take pride in how well you've paid your credit card bills and other debts on time each month. But even those who have a great record can fall on hard times, or confusion can set in because there are many smaller payments each month instead of one large one. This problem can have an effect on your retirement planning.

If you're having trouble in the area of saving money for the future, your financial planner may advise you to consolidate some of your debt. However, it can be difficult to obtain a personal loan for such purposes from a bank. This is where peer-to-peer lending comes in to help.

Where the Money Comes From

Some online lending institutions offer their own money when giving out personal loans. However, there are some that use money from private investors in what's called peer-to-peer lending. The latter is a concept that many investors find attractive, because they invest in people rather than stocks, and your money comes from people who are just like you; or at least were just like you at one time.

How It Works

Applying for a loan at an online bank is much like applying for a loan at a brick and mortar bank, only it take much less time. You apply for the loan, and you are either approved or rejected. If approved, money is either wired to your account, or you can pick up the funds at a local branch.

Peer-to-peer lending works differently. In this scenario, you apply for the loan, the company does a soft pull on your credit report, and then makes you an offer. This process is instant. You'll know how much you can borrow and what the interest rate is immediately.

Once you decide to move forward with the application process, your loan request is placed on the site for investors to choose. Once your loan is fully funded by investors (there can be more than one), you'll get a notice via email. The application process of proving your identity and income continues from there. Once everything checks out, the funds are wired to your bank account.

When You Might Be Declined

As easy as all this sounds, there may be some situations when even those with pristine credit are declined. Some institutions require a higher FICO score than others, while some require a certain amount of income. For example, if you're self-employed with a lot of deductions on your taxes, you might be declined because your taxable income is not at the level that the institution requires.

Take your time to investigate all your options for consolidating your debt. The majority of the time, a personal loan can save you money, but there can be times when it won't. Ask a financial planner, like those at Duff & Associates, for help if you are tired of being tied down to debt and you want even more options than an online personal loan.