Are you financially stuck and need a quick fix? Where do you turn to? Mainstream financial institutions and banks are out of the question as most of them require too much protocol and paperwork that beats the logic of giving urgent loans.
Don’t give up yet! You can approach a P2P lending platform for a loan. In the U.S, 26% of people use P2P platforms to acquire quick loans.
But what is P2P or peer-to-peer financing? It is a method of loaning money between individual borrowers and investors. The borrowers pay the said loans with specific stipulated interest rates.
It is a quicker and easier way to get a non-collateral online loan for an urgent need. Keep reading to learn what peer-to-peer loans are, what the lending process entails, and how you can secure p2p loans.
What Is P2P?
P2P is a platform that brings services and products directly to the customers and consumers without the involvement of a third party. The term p2p is mostly a traditional concept that has over time morphed into a mainstream idea widely used across the disciplines.
A p2p service enables its users to transact directly with each other normally through a platform such as a mobile application or an online interface. In a broader sense, peer-to-peer services help cut down extra costs that would be incurred by the individuals in need of the services if a middle man or an intermediary institution was involved.
In the world of business, there are several examples of actual companies that operate using this concept. Re-known franchises such as Uber in the transport industry, Etsy in the art industry, and several others buy into this age-old concept.
How P2P Financing Works
What is p2p financing and how do you get a p2p loan?
Peer to peer financing borrows the same concept as crowdfunding only that this time its loans involved and not investments. A p2p loaning website brings together borrowers and lenders and enables money transaction between individuals in the form of loans.
A Lender’s Profile
A lender or an investor creates a lender’s account that consists of their profile and the relevant bank details for loan repayments. They’re usually required to fund the account.
In most cases, the standard amount for an initial lending account is $1,000 for P2P platforms. There are sites, however, that allow one to be a lender with as low as $25.
Depending on the loan needed and creditworthiness of the borrower, the lender will avail the credit to the borrower at specific stipulated interest rates. The website or the mobile application only serves as an intermediary between the parties.
A Borrower’s Profile
The borrower usually creates a profile indicating what kind of financing they need. They then scroll through the site to see the available loan options for their needs.
The lenders advance credit on their preferred terms. The good thing about peer-to-peer loans is that you are at liberty to obtain loans from a lender listed on the platform that meets your desired terms.
Acquisition of P2P Loans
If you need a small amount of money, you simply approach a lender who is offering what you need. However, if you need a large amount of money, say $4,000, you can decide to split the loan into smaller amounts and borrow from different lenders.
For example, for $4,000, you can opt to get $1,000 from four different lenders on the platform. It is important to note that different platforms charge different interests on loans. They also differ in the criteria in which they use to connect the lenders who are commonly known as investors to the borrowers.
Be sure to do your due diligence before settling for any of these to avoid being duped. Generally, all p2p websites offer small, unsecured loans for an emergency, debt consolation, or business loans.
Benefits of P2P Loans
Peer-to-peer loans are not in any way better than traditional bank loans. However, they are convenient as most platforms offer better rates and terms that make p2p more competitive. For example, if you were thinking about applying for a no credit check loan, it may worth it to check out p2p lending first.
The p2p financing option is steadily growing, and especially in America. Recent statistics from PWC show that in 2014 P2P platforms lent more than $5.5 billion and this amount is set to rise to $150 billion by the year 2025. Some of the primary reasons that could lead you to choose p2p loans over the regular ones are:
Easy and Accessible
Getting a loan with the p2p platform is straightforward and comparable to cash loans. It will take less time than the typical bank loans and credit unions that require increased scrutiny on your credit scores and extensive paperwork.
On the other hand, to get a loan with traditional institutions such as the banks, you need an established relationship with the institution. This is hardly the case with peer-to-peer financing.
The loans are easily accessible through the platform regardless of the time you require it. The decentralization of the platform has increased accessibility and reduced the overhead costs that are incurred when getting traditional loans through banks and other credit institutions.
Lower Interest Rates
P2P loans are bound to attract a lower interest rate as the interaction usually is direct from lender to the individual borrower. Some peer to peer platforms even allows haggling among the parties.
The provision to re-negotiate your loan rates gives you a chance to get your loan financed at a comfortable price that you get to agree with the investor. This is not the case with traditional loans that leave minimal room for renegotiation of the rates.
The fact that peer-to-peer financing is solely sourced on the internet significantly reduces the amount of scrutiny possible to a borrower. The terms are, therefore, more lenient than the typical traditional loans.
Additionally, the requirements to qualify for a loan are usually less stringent in p2p lending. Often your profile and a few background checks on your loan repayment history will suffice as what is needed to get the loan from the investors.
It may take a few days to get your loan funding, but in most cases, within a few moments of requesting for the loan, you will be informed if your loan will be available or otherwise.
Risks of P2P Loans
Below are the risks you should be aware of before approaching a platform for peer-to-peer loans:
It is advisable to ascertain the credibility of the peer-to-peer loan platform you are using to get a loan online. Be on the safe side and do thorough background checks to avoid fraud and other risks that may arise from online transactions.
The most common risk with online transactions is identity theft. Avoid surrendering your personal information and banking details to unverified websites.
It is always advisable to look out for reviews on what other users have to say about a website before using it. If a site has horrible customer services or has complaints about ineffective service, you can seek alternative options.
The ease of accessibility does not warrant regular acquiring of the p2p loans. There is a risk of credit-addiction due to the overly available loans through these p2p platforms.
You should learn to be prudent and frugal in your spending to avoid regular borrowings as it may be detrimental to your credit score. It is understandable that you need emergency or necessary quick fixes, but that can happen only so often.
High Delinquency Rates
Another significant risk is the risk of high delinquency rates. While the accessibility of these loans is high, defaulting may result in overcharging from the system. This may cause the borrower to sink into more debt or become noncreditworthy due to owed dues.
Strive to pay your loans on time. However, if this becomes impossible, try to renegotiate the payment plan with the lender to prevent a dip in your credit rating. You can also consider personal financing for bad credit to fix the need.
The Usability of P2P Financing
Different people perceive P2P loans and lending in general in different ways. Regardless of the ease of availability, P2P loans will be useful in some situations and not others.
Do your research and make the right decision on the kind of loan you require for your type of need. It may be possible that your solution is a personal loan. Or perhaps you only need more information on debt consolidation or bad credit financing.
You won’t always need P2P loans to solve your financial need. Consider other avenues that don’t involve plunging you into debt, especially if you already have other loans such as auto, mortgage, or credit card loans.
Do You Need a P2P Loan?
What is p2p financing and how can you use it to acquire a loan?
Now you know! Peer-to-peer loans can make a huge difference when you’re in an emergency. However, you need to make an informed decision to avoid delinquency in loan repayment and maintain a good credit score.
At Bonsai financing, we have a wealth of information and services that can help you make the right decision. Check out our blog and sample our age rich financial information and solutions for your specialized needs.
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