This way of getting loans eliminates the middle man of a lender and then directly puts you in touch with the investors who are going to fund your loans. They could give you a competitive rate without good credit with less paperwork than a bank loan.
How does it work?
Peer-to-peer lending is normally called as P2P. This process connects the borrowers with investors who fund loans. The key benefits of using P2P for a personal loan for students or any other need is that they are faster and can get you competitive rates compared to banks. This is because rather than human underwriters, P2P platforms rely on algorithms for reviewing applications that make the entire process short while reducing the overhead cost.
Getting P2P Loan
Here are the four simple steps of getting a P2P loan:
- First, you have to apply. You have to fill out an online form containing your financial details and situation along with your credit history, debts, employment, and income.
- Get yourself graded. The platform usually grades the application so the investors can determine how much money to lend you and decide on the interest rate.
- As the investors can decide to fund your loan partially. You would have to wait for them because it might take longer to receive your funds compared with traditional personal loan lenders.
- After all this, you can get your money. After full funding of your loan, the loan proceeds are going to be deposited into your account within a few days.
Benefits of Getting a Peer-to-Peer loan
Since its emergence about a decade ago, P2P lending has become a thriving part of the American credit sector.
Here are a few reasons/benefits why borrowers opt for this way to get this loan:
- The interest rates and fees for a P2P loan are lower than what you would get with a bank.
- The lenders of P2P loan take your credit history, income, and other factors into account which a bank might not bother with. So, the eligibility criteria are flexible.
- You could get yourself an interest quote that won’t impact your credit score – a scenario impossible with a bank.
- Usually, the applications for P2P loans require fewer documents than bank loan applications. So, the work is less.
Types of P2P Loans
Although the best personal loan lenders and peer-to-peer lenders offer a variety of loans, the following ones are the most common types of personal loans:
- Business loans
- Debt consolidation loans
- Secured personal loans
- Unsecured personal loans
Is it secure?
In most cases, yes, it is safe to get a P2P loan. As long as you get in touch with a legit lender that uses the standard security measures, P2P is secure.
There is no harm in using a personal loan calculator yourself to know about your personal loan monthly payments.
Before using a P2P lending site, ask yourself these three questions. These would help you in ensuring that you are in the position to borrow a loan.
- Am I eligible to get this loan?
- How much am I going to be charged?
- What will be the consequences if I default on my loan?
For both borrowers and lenders, peer-to-peer lending could be a great substitute for conventional loans. Most of the P2P loans have equal terms and similar amounts without strict eligibility requirements. But even then, you need to have a steady source of income as most P2P lenders require minimum credit.