Peer-to-peer lending is also known as person-to-person, P2P or social lending. It is a type of lending that takes place between two anonymous individuals instead of working with a conventional lender or a bank. The borrowers and lenders match through an online platform that uses complex computer algorithms.
Loans in P2P lending typically range from $1,000 to $40,000. Higher amounts might be available for small business loans and lines of credit. The terms of loans range from one to five years. Because there is no physical office for the P2P lending marketplace, costs between the borrowers and lenders are lower than traditional lending companies.
Below are the pros of getting peer to peer lending instead of working with banks and other traditional money lenders:
Faster and easier approval
P2P lending is known for releasing approval in a fast manner and easy manner. Compared to traditional lender, P2P is way easier and faster. Most of the time, borrowers will have access to a huge network of lenders to work with. There are lenders who are skeptical with people who have bad credit, but most of them are willing to extend financial help.
Fewer fees to pay
Another pro of using peer-to-peer lending is that the borrower would not have to pay many fees. When a borrower tries to work with a traditional bank or money lender, it is 100 percent that he/she will have to pay for an application fee, processing fee, and usually several other fees that you are not aware of. Working with another individual when it comes to money, he/she will not have to pay those fees; hence, it saves more money.
No wasted time
P2P lending guarantees the borrower that can access his/her money quicker. Traditional lenders such as bank, it will take days and weeks before the borrower can the needed money. With peer-to-peer lending, you may be able to get your money the same day that you apply for it.
Reasonable interest rates
In P2P lending, it only offers reasonable bank-like interest rates. Approved borrowers will be offered several different payback timelines ranging from one, three, or five years. The interest rate is accordingly adjusted up or down based on the term selected.
Borrowers don’t need to worry of the interest rates because it is fixed for the duration of the loan. If the borrower opts for early repayment, there are no penalties. But it is worth noting that repayment periods are usually quiet short, which is between three to five years.
Lower level of security and guarantees
Most often than not, P2P lending demands lower levels of security and personal guarantees compared to traditional banks. Mostly, borrowers will be asked for security in the form of a directors’ personal guarantee or assets if he/she is into business.