Most borrowers who turn to P2P sites do so to avoid higher interest rates charged by traditional lenders and credit-card companies.

As a borrower, lower interest rates mean lower monthly payments and more cash in your pocket. As a lender, lower rates can mean greater risk, since borrowers may be less credit-worthy or less able to meet their payments.

Loans sought at P2P sites typically are used for one-time events—such as weddings, starting a business, financing a car, making home improvements or refinancing high-interest student loans or credit card debt.

From a borrower’s perspective, little numbers mean a lot. For example, let’s say you borrow $5,000 at a rate of 7% over three years. Your monthly repayment will be about $154, and after the three years you will have paid a total of $558 in interest. If your interest rate had been 11% on the same loan, you’d owe $164 a month and wind up forking over $893 in interest.

Before considering a social lending site:

• Check your credit score. P2P sites base your eligibility and posted credit risk on your credit score. Read our credit monitoring guide for more information on understanding and improving your score. Participating in a P2P site as a borrower or lender doesn’t affect your credit score right away. Most sites do a “soft pull” to evaluate your creditworthiness when you apply for a loan. Only when your loan is fully funded and you accept it, will a hard pull show up in your credit report. Some sites will only report you if you default, while others will report on-time payments and delinquencies to credit bureaus.

• Know what you need. Calculate how much you truly need to borrow. Don’t ballpark. The less you need, the lower your monthly tab and total interest paid over three years.

• Run the numbers. Figure out how much you can afford to pay each month, which in turn will help you set your interest rate. Should be easy to use and do monthly payments and total interest paid calculations like this one.