Over the last decade, a new type of alternative lending has been getting popular, which is known as peer to peer lending. The idea behind it is to match the people who are in need of money to those who are willing to lend their money. If you are in need of money for any purpose from paying utility bills to overcoming business cash flow issues you can get it from p2p platforms. All the processes in peer to peer lending take place online so you can get a loan without going to the bank or lender’s office. If you are thinking of borrowing through p2p platforms here we are providing a comprehensive guide that can help you in this aspect.
What Is Peer To Peer Lending?
It is a way of borrowing and lending between individuals that can also be called “peers”. It eliminates the need for traditional financial institutions or banks and makes lending and borrowing easy. If you want to borrow the money you have to choose a platform register yourself as a borrower and provide the necessary information. This platform then matches you with the individuals willing to lend money.
P2p lending platforms act as intermediaries and do all the hard work for lenders and borrowers. In return, they charge a fee from both the investors and debtors. You can get a loan at a lower interest rate than the standard bank loans. However, keep in mind that the interest you have to pay depends on several factors such as your credit score and monthly income. You can easily get the best loan deals if you have a good credit score and no missed payments in the past.
When you apply for a p2p loan the[ platform initially conducts a soft credit check and after approval, you have to pass the platform’s own check. If they find you are creditworthy and afford to repay the loan, funds will be transferred to your bank account within a short amount of time.
Benefits Of P2p Lending For Borrowers
Peer to peer lending offers a number of benefits to the borrowers. Here we are describing some significant benefits.
- You can get loans easily without going to the bank or completing lengthy paperwork.
- Now you do not have to wait for weeks or months to get funds. P2p loans take less time in approval that is usually 24 hours. It means you can get quick access to funds and fulfil your needs.
- Peer to peer loans is available at lower rates compared to traditional bank loans. Especially, if you have a good credit score you can secure a loan at the most affordable rate.
- Some p2p platforms also do not set a minimum loan amount. It is a great benefit for those looking to borrow a small amount of money.
- People who find it challenging to get a loan from banks due to low credit scores can also get a loan through p2p platforms
Drawbacks Of P2p Lending
Along with the benefits, there are some drawbacks of p2p lending that you must know before taking a loan.
- If your credit rating is below average you may have to pay an interest rate that is higher than that of banks or traditional lending institutions.
- You may also need to pay a fee to the platform for loan arrangement. There are some other charges such as administration fees and early or late repayment fees that can add up to your borrowing cost and make it expensive.
- Some platforms may not grant you a loan if you have a bad credit score or missed loan repayments in the past.
- There is a lack of government regulations and still, some platforms are not regulated by the Financial Conduct Authority (FCA). These platforms may not be able to provide a transparent service.
In p2p lending, there are fewer risks for the borrowers but more risks for the investors. They can lose their money in case of defaults and have no protection by the Financial Services Compensation Scheme. As a borrower, you should read the terms and conditions and understand them to avoid any inconvenience later.
How Much Does A P2p Loan Cost?
The cost of p2p loans highly depends on the interest rate. The higher the interest rate the more will be the borrowing cost. The interest rate varies from platform to platform and it mainly depends on your credit score. If you have a good credit score it means there are fewer chances of default so the lenders are likely to offer loans with low-interest rates. With a good credit score, you are able to secure a loan with an interest rate as low as 3%. On the other hand with a poor credit rating, your interest rate can be as high as 30%.
Other than the interest rate there are some fees that platforms charge from the borrowers. You should consider these charges to get an idea of the borrowing cost. In this way, you can determine whether you can afford to repay the loan or not.
How To Apply For P2p Loan?
If you want to apply for a p2p loan the first step to do is research and make a price comparison. This way you can choose the right platform. After choosing a platform, register yourself and select the loan amount and for how long you want to borrow money. After that wait for the approval, if your loan application is approved you can see the interest you have to pay. The platform then displays your loan application in the borrower’s list from where the lenders who find you suitable select you and grant funds.
Before selecting peer to peer lending UK as a source of funding you should be aware that if you are not able to repay the loan the p2p platform may transfer the debt to the debt collection agency. This agency chases the loan on the lender’s behalf and you may have to go to court. Moreover, if you default or miss a payment it can cause an impact on your credit score and it makes it difficult for you to get a loan in future.
