As more and more borrowers look for affordable finance options, there is an emerging finance trend in the past few years and it is the rising fame of P2P or Peer-to-Peer lending.
Basically, peer-to-peer lending gets rid of the need for an orthodox lender like the bank and rather connects the borrowers and investors through an intermediary lending marketplace. Investors include both companies and individuals who invest their money with a pP2P lending company and generate profits through charging fees and interests to both borrowers and lenders.
Peer-to-Peer Lending – How It Works?
The eligibility of a borrower for loans is evaluated by the provider as well as based on the employment and credit history of the borrower. It will determine their interest rates. Then, borrowers repay loans through the peer-to-peer lending platform, which passes the repayments to the investors.
Peer-to-Peer Lending and Its Benefits
- Online and Efficient Application Process
Peer-to-peer lending provides a fast alternative to navigating the procedural headaches and paperwork the banks encompass. Since everything is done online, the whole application and transaction process is much quicker compared to the lending methods.
- Competitive Interest Rates
Typically, borrowers may secure interest rates lower than the ones provided by the traditional banks. This provides the borrowers the chance to access the funds at competitive interest rates that mean they decrease their interest fees over the period of the loan. Since the interest rates made with every borrower’s in mind, the rates of P2P may range from around seven percent to twenty-seven percent based on the serviceability potential and credit history of the applicant.
- Low Fees
The savings that you can generate through applying online reduces the charges and fees associated with accessing your finances. The absence of the shareholders, managers, and physical banks reduces the charged fees to the users of peer-to-peer lending. But, there are many things that you should take note before you borrow or invest in the P2P lending provider. You must check that the organization is registered or correctly licensed and you must review their terms and policies to ensure that you aren’t signing up to something that you will just later regret.
The Bottom Line
Peer-to-peer lending makes waves in the industry of finance and it’s a trend that many people will likely see more for the coming years. For those who want to borrow a particular amount of money with a low-interest rate, they can surely benefit from peer-to-peer lending. With the efficient application process of P2P lending, it can be a cost-effective and innovative option. But, it is advised that even though P2P lending is no doubt a great option for everyone who has different kinds of financial worries, it has also some disadvantages that you should be aware of.
Other than that, you have to know that there are various P2P lending service providers you might find in the market. Note that not all will give you outstanding service, so shop around first and make a comparison.