Peer to peer lending is a good option for people who have bad credit but find themselves in an urgent need for a loan. Borrowers with a poor credit score can borrow funds without going through traditional financial institutions such as banks and credit unions.
A peer to peer lending platform, also known as P2P, is an organization with a secured website that matches borrowers to lenders and vice versa.
Typically, these kinds of platforms are found online. In most cases, the entire process from credit application to loan release can be done online as well.
There are many private lenders out there who are looking to invest their money, while there are those who are looking to borrow money at attractive interest rates. Both lender and borrower can get what they need by participating in peer to peer lending.
Advantages Of Peer To Peer Lending
The main advantage for borrowers is that it’s easier to apply for a loan with a peer to peer lending site compared to a bank. Even if you have bad credit, it’s still possible to get competitive interest rates for your loan.
Another advantage is that there are many different lenders to choose from within P2P sites. Even if your loan doesn’t get approved with a particular lender, you can still continue to shop around for other available loan offers within the site.
Quick processing is another benefit. With traditional borrowing, shopping for loans can be time consuming, but with P2P all you need is to browse and compare various available loans within a peer to peer lending site.
Disadvantages Of Peer To Peer Lending
The P2P platform may charge additional fees such as origination cost, as well as transaction fees. In most cases, the additional fees could eat up around 1% to 5% of your loan amount.
Aside from those extra fees, some lenders can offer a higher interest on your loan because they view P2P platforms as a riskier investment than putting capital in a bank, in real estate, or the stock market.
Who Should Consider Borrowing From P2P Platforms?
Peer to peer borrowing is ideal for those who are looking for quicker loan approval options. Regardless of whether you have good or bad credit history, joining a P2P site will give you access to hundreds of lenders who are willing and eager to let you borrow their money.
What To Consider When Borrowing Through A Peer to Peer Platform
First, you have to join a P2P site that has a good reputation. This will ensure that you will gain access only to the best private lenders who will not impose unreasonable rates and become a headache to deal with.
Also, don’t jump on the very first loan offer you receive. Try to shop around within the platform and see if there are other lenders who offer the same amount with lower interest rates. Loan offers vary in terms of interest rates, term, and maximum amount you can borrow. Make sure you’ve done your homework before choosing a lender that fits your needs best.