One of the newest ways of borrowing money today is the peer to peer loan or the P2P. In a P2P loan, a borrower can take a direct credit from his peers, and not from a lending institution. P2P lending is run by one person or by a group of peers that pool their resources to start the business. People also call it social loans or crowdlending. You can find several P2P lenders online, and you can check their details, such as maximum credit, interest rate, and terms of payment. By canvassing several lenders, you can make a wise decision on where to get a loan.
The Nature of P2P Loans
P2P or social lending refers to a kind of loan where people can get a loan directly from individuals or groups, instead of from financial or credit agencies. Social or peer lenders do their business online to avoid overhead expenses, and this allows them to charge interest rates that are lower than what banks and other lending institutions collect.
Another feature of social lending or crowdlending is that lenders decide whose application they should approve. If there are 100 lenders in a peer2peer group, one of them can bid to extend a loan or to invest in a form, especially for small businesses or for entrepreneurs that need more funds to start or expand a business. When a borrower pays, it goes directly to the investor rather than to a company or agency.
Some people think that social or peer2peer lending requires a personal bond or relationship between a lender and the borrower. However, such an idea is wrong because anyone can apply for credit and get approval.
Like other credit and financing companies, applicants might need to submit their credit rating, annual income, and other earnings. However, requirements may vary across lenders.
Advantages of Taking P2P Loans
People taking P2P loans can enjoy some benefits over those that borrow from banks and other credit companies.
- Fast and convenient application
P2P borrowers use a platform to apply for credit, which makes the process quick and convenient. The website includes a list of lenders waiting to invest in borrowers, which makes approval fast, as well. Because of automation, the release of a loan can take only a few hours.
- Low rates
P2P lenders have minimal overhead expenses so that they can afford to charge interest more economical than that required by the banks and other financing companies.
- Loan inquiries do not affect credit score
When you inquire about loans in banks and or bad credit payday loans, it reflects in your history record and affects your credit rating. The more searches you make, the more your credit score goes down. On the other hand, looking for a loan in the P2P platform does not have the same effect on your credit history.
Borrowers in a P2P platform do not have to provide collateral to back their loans, allowing people that do not own a house or car to take a loan. Such practice allows quick approval because you do not have to wait for the company’s representative to assess your personal property before you can borrow. The traditional method of determining the amount you can borrow on the monetary value of your property does not apply anymore.
One remarkable difference between a P2P loans from traditional loans is its flexibility. You are free to pay more than your monthly due if you want or to have a small balance for your monthly payments. You can pay your remaining balance anytime without paying any charges. You are free to adjust your payment schedule if there is a change in your salary schedule. As a result, you can manage your debt well.
While you can enjoy lots of advantages, having an idea as to some of its downsides can help you make a wise decision.
- Pass credit and other checks
Applicants that have good credit ratings can enjoy fast loan approval because many P2P lenders are willing to invest in them. For people with a bad credit history, taking a loan may take time.
- Application fee
While banks and credit companies do not collect an application fee, P2P platforms do because they have to find a lender to invest in the borrower. Part of the money you pay goes to security. In case a borrower fails to pay his loan in full, an amount from the pooled fees would cover it, reducing losses on the part of the lenders.
Now that you know how P2P lending works, you can weigh the advantages and disadvantages when deciding where to take a loan. Remember that all types of loans have their pros and cons. Instead of sending your application to the first credit company you come across, check several others. It is up to you to make a wise and beneficial choice.