P2P loans or peer to peer loans are just that – loans. However, the reason why they are so popular lately is that they enable you to borrow or lend money without the need for a financial institution as an intermediary.
What that means is that you can theoretically get a loan without ever visiting a bank or the credit bureau. However, things are a bit different in practice. It requires more time and effort to complete the process, but it avoids the use of the middleman, which means that the interests are going to be lower. Here’s the rundown of how it works.
The Lender’s Goal
If you are interested in this method of crediting as a lender, that is, a person who provides the money, you will undoubtedly want to know what you can expect from this endeavor. In short – higher yield than if you invested the money into a savings account. It can also diversify your investment portfolio, ensuring that not all of your money is in the same risk.
That being said, if you are considering this as an investment opportunity, you must be aware that you run the risk of losing money if the borrower defaults. That is, if you do not use well-secured platforms like https://www.silverbullion.com.sg/AboutLoans.aspx.
The Advantages to the Borrower
If you are a borrower who is looking to avoid using banks of credit institutions, this is the best option you have. What most people list as the best feature of peer to peer lending is that it has a fixed duration. It is most commonly limited to 3 or 5 year periods, but the details can be arranged between the two parties.
The experience is streamlined and you can do everything online. The credit score check is a soft one, so it will not affect your credit score drastically. Your interest rates are likely to be much lower than they would be with a traditional loan with a bank. That is, unless your credit score is really bad. In that case, you may be looking at improbably high interest rates.
Personal P2P Loans
In most cases, the loans offered in the P2P method are small loans. If you are applying as an individual, you are most likely going to be granted access to a range of $1,000-35,000. The good thing is that these loans are flexible, meaning that you can use the money as you see fit. In most cases, these loans are used to repay some pre-existing loans with bigger interest rates.
Another reason people take out these loans is house remodeling. In most cases, the banks set very high interest rates on specialized loans, and you can only use the money on that project. With P2P, you have a bit more freedom when spending the money, and the interest rates are typically much lower.
Small Business P2P Loans
When starting a business, you need a lot of money upfront. However, most people do not have that much money, so they turn to banks for loans. Due to the uncertainty of investing into a new business, banks usually set a high interest rate. On the other hand, P2P lending lets investors choose if they want to finance a project or not, which means that the interest rates are lower.
However, these loans are limited in terms of the amount of money you can get. They range from $15,000 to $100,000.
P2P lending is a new, but promising branch of financing and a lot of forward-looking institutions are trying to implement P2P platforms as a way of avoiding the red tape and complications. However, seeing that this is still a new field, the market isn’t as regulated yet, so only invest or borrow from institutions which you can trust.
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