Benefits, and Drawbacks of Peer to Peer Lending for Borrowers
Individuals and businesses looking for funds to meet their emergency financial needs may find peer-to-peer lending an ideal solution. It offers different types of loans with quick approval and access to the funds. Due to ease and flexibility, p2p lending has become very popular in the UK in recent years. It is a good alternative to traditional bank loans that may take a number of weeks or even months to approve. However, it is a relatively new type of lending that is why many people are unaware of it. If you are also new to p2p lending, keep on reading to find out the risks and rewards associated with it. It will help you to decide whether p2p lending is a good option for you as a borrower or not.
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Benefits of Peer to Peer Lending
The advantages that p2p lending offers over other types of borrowing are as follows:
Fast and Convenient Application
Typically all the p2p lending platforms operate online. That is why the application process is fast and convenient. With these platforms, you only need to fill an application form and provide all the required information, and can get the initial quote within minutes. Moreover, it also protects you from the hassle of going to the market and meeting agents in person.
With p2p lending, you can often find loans with lower interest rates compared to traditional bank loans. As investors are offering direct loans to the borrowers, there is no overhead cost like other financial service providers.
Most peer-to-peer loans are unsecured, and borrowers do not need to use any of their assets as collateral. It also makes the application process uncomplicated and allows borrowers to access funds quickly.
No Bank is Involved
There is no intermediary between borrowers and lenders. You only have to deal with peer-to-peer platforms. Select a p2p platform and fill in an application form, and the platform will do all the hard work for you to find the best loan meeting your requirements. Other than that, you do not have to pay any additional fees like when borrowing from the banks.
Drawbacks of Peer to Peer Lending
Along with a number of benefits, there are some disadvantages of peer-to-peer lending. Let’s have a look at them:
You Have to Pass Credit Check
Although p2p lending removes the need of any financial institution or traditional banks, it never means that there is no underwriting process. No matter which p2p platform you choose, you need to pass through a credit check to secure a loan. This credit check ensures that the borrowers are creditworthy and they can afford to repay the loan amount. According to this credit check, borrowers are given a credit rating. If the credit rating is low, the borrower has to pay a high interest rate. It also helps lenders to identify the borrowers who are more likely to default.
If you have a poor credit score, you must work on improving. It will help you to get a fast loan with a low interest rate.
When you take out a loan from a building society or bank, sometimes they charge a loan arrangement fee. Similarly, with p2p lending, borrowers have to pay a loan arrangement fee that is added to the loan cost.
Peer-to-peer platforms earn money by taking these types of fees from investors and borrowers. This is one thing that you should be aware of before taking out a p2p loan because it can increase your borrowing cost.
Now that you know the positive and negative sides of peer-to-peer lending. You can choose easily whether you should take out a peer-to-peer loan or not.