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P2P lending is a possibility: is it a good idea?


There are two ways to approach peer-to-peer lending – as a borrower or as a lender. However, regardless of who you are, there are several distinct benefits you can take advantage of to strengthen your current and future financial situation. Of course, some traps can make a fool of you. Therefore, you need to be careful. Peer-to-peer loans can lead to prosperity, or they can lead to ruin. It is a double-edged sword. Constantly evaluate and analyze the credibility of the p2p platform before making any decision. 

What is peer-to-peer lending?

P2P Loans is like eBay for loans. That is a crude analogy, so let us elaborate on that a little bit. EBay is an open marketplace that allows buyers and sellers to come together in one place and trade goods, bypassing the need for a retailer. In other words, eBay is the online platform that facilitates the direct purchase and sale of goods between people. The perfios p2p lending software is very similar, which is why you can call it marketplace lending. Instead of applying for a loan from a financial institution like a bank, credit union or government, you can apply for a loan guaranteed by ordinary people: peer-to-peer.

The relationship between a borrower and a lender

As a borrower, all you have to do is fill out a quick online application, which involves a credit history check and explain why you want the loan. Depending on these and a few other factors, you will receive an interest rate, and your loan application will be ready to post. As a lender, you will be able to browse the market for loan applications. Each loan application will provide relevant information about the borrower (income, name, credit history, reason for the loan). You can finance a portion of the loan application or all of it if you wish. 

Are peer-to-peer loans suitable for you?

P2P loans are not suitable for everyone. Is it a viable option when you need a fast personal loan? Yes. Is it a possible way to invest your extra money and potentially generate great returns? Nevertheless, are the risks worth it? Well, let us explore the myth in detail.

The first idea behind p2p lending

One of the main reasons for the P2P loan is that interest rates tend to be lower than what you can get from a bank. While a personal loan can have an interest rate between 12% and 20% from a financial institution, a P2P loan can only have 5% with good credit. Another big reason is that the application process is much less formal than a traditional loan. You do not need a lot of documentation, and credit checks are minimal. Moreover, even if you have bad credit, you can explain why. You can get a loan for any reason as long as there are lenders who will invest. P2P loans are unsecured, which means there is no collateral required. This characteristic makes p2p lending a safer option than taking out a second mortgage. 

Nevertheless, it is not all sunshine and rainbows.

Interest rates for P2P loans skyrocket as your credibility declines, to the point where you have to pay more in interest than a credit card. If you are late on payments, the fees can be significant. Moreover, if you do not repay your loan, the collection fees are out of this world. P2P loans also tend to favour shorter terms, as interest rates tend to increase with longer orders. Now that you understand the concept of peer-to-peer lending a little better, let us highlight some benefits gained by adhering to it.

Lower interest

It is one of the main benefits of peer-to-peer lending. After all, interest rates are lower than those charged at the bank are. It is only possible because the platforms that work with this type of loan do not use Bank Spread (the difference between the rates at which the bank acquires money from investors and then transfers the loan).

No bureaucracy and safety

If you study the short definition of peer-to-peer, it refers to the disintermediation process in which two or more users can communicate or exchange information. In these loans, there is no intermediation of banks, which makes the process much less bureaucratic. However, it is not to say that it is not safe. All people who interact with the p2p lending software, whether entrepreneurs or investors, undergo a strict credit rating.

All online: from the comfort of your home

Besides the absence of bureaucracy, another benefit these platforms bring is the ease and convenience of the online environment. In other words, there is no need to waste time going to the bank and facing a big queue. Above all, you do not even know if the bank will approve the credit. Via the p2p lending platform, the entrepreneur will apply for a loan from his home or office. 

Flexibility and negotiation

It is widespread for the word "loan" to make anyone apprehensive. After all, it has always been associated with something terrible because it refers to bank loans, which usually have an abusive interest. The peer-to-peer loan can be an excellent solution for micro and small entrepreneurs. Flexibility and negotiability are other benefits of peer-to-peer lending. Most of the time, it is required by the banks to approve the loan. P2p loans are indeed subject to market risks. But, if you evaluate the aspects and research a lot before taking or lending money, there is no chance that you fall into traps.

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