Banks may be reputably known as the one-stop for money, but the age long tradition of borrowing from peers is still a thing. One way to get out of waiting in long queues till it’s your turn to get that loan approval can be a thing of the past. You can also pay off your credit card debt or consolidate several loans. Rejected by your bank because of your credit score? Then your neighbor may be more than willing to help.
What is Peer-to-Peer Lending?
Peer-to-Peer lending makes reference to borrowing and lending from and to people within your area. There are several platforms that cater to that and all that is required is to you to sign up and make the necessary verifications. You can then go ahead and enter a loan amount while other users of the platform which have chosen to be lenders will begin to make bidding.
The best part here is that the higher the number of bids your loan attracts, the lower its interest rate and the faster you’ll get funded. Likewise, these bids are combined together to give you the amount you requested and as such, this is just one more way to go if you’re looking for a way to get out of that situation. The platform will serve as an interface to making monthly withdrawals from your bank to repay the loan until the capital is covered.
While this sounds good on the part of the borrower, a lender, on the other hand, may still face certain risks. One of such is the in-completion of the monthly repayment if a borrower defaults. The P2P is serving as a platform to link both but is not liable to make payments on behalf of the borrower who has failed to keep their end of the bargain; another factor to consider is that these platforms charge a 1 percent fee if not more from lenders.
How Do Peer-to-Peer Lending Sites Work?
Before dipping your feet into the peer-to-peer lending business on these portals, there is some information you need to be armed with. The first is how peer-to-peer lending sites work.
Lenders’ risks on P2P lending platforms are reduced by allowing them to lend to multiple parties. As such, if one fails to pay back or misses a monthly deadline, then they won’t lose entirely. There’s also the 1 percent fee that is charged for all approved loan. But given that you stand to gain interests every month, that may be something worth overlooking.
In a bid to make money from the service they are providing, P2P charge borrowers 3 percent interest rate. There is also no prepayment plan and the loan term can be set for three years which you are meant to pay back the capital. If 3 percent sounds too high to dish out per month, then you may have to consider other options.
Credit history or score will definitely be used on peer-to-peer platforms in order to ensure that only people with a credible lending history are borrowed too. Thus, these platforms rely on a score of about 660 in order to make their conclusions. As a lender, you will also be able to see the score of the potential people you will lend to in order to determine if you’ll like to do business with them.
Other criteria that are used to determine who to approve for a loan include:
- A 25 percent debt to income ratio
- Not exceeding the credit limit of 100 percent
- Less than 10 credit inquiries the past 10 months
- A citizen of the U.S. with a valid social security number
- Operating an account at a financial institution in the country
Having taken a look at these criteria, you can now decide if obtaining a loan from a bank or peer-to-peer lending sites are much better. Can’t get a bank loan? Then this is why one more alternative to tap into. A large number of lenders on these platforms also means you can get funded on time and even reduce the interest rate significantly