In recent years, a new area in the world of lending has begun to gain extra popularity. This area is known as social or peer to peer lending. Peer to peer lending works on an idea that people who want to borrow money should be placed in touch with people who are willing to lend that money.
In simple terms, it’s like sharing money between people across a vast network, but if you borrow money you will need to obviously pay it back. If you want to borrow money, your peer to peer lender will put you into contact with the people who will lend to you. Because of this, the companies behind these services are often intermediaries between lenders and borrowers. Most of the time, they can offer lower rates of interest than a traditional loan. However whether this is the case for you will depend on a range of factors, including your credit score.
Remember, if you apply for a loan with peer to peer lending, you will need to have your credit checked using a credit reference agency, and you will also need to pass the credit tests imposed by the peer to peer company.
The Positives and Negatives of Peer to Peer Lending
If you’re looking to get your hands on some extra money without having to pay huge amounts of interest, then peer to peer loans can be far cheaper and more agreeable than the solutions conventionally offered by building societies and banks – particularly if you have a good credit rating. Some Peer to Peer websites come with no minimum loan amount, which may be perfect for those who only want access to a small amount of credit, and they represent a fantastic option for people who struggle to get loans from standard building societies or banks. Most lending sites will also allow you to repay the money that you borrow early without having to pay any kind of fee or penalty.
Of course, as with any financial service, it’s important to remember that peer to peer loans might not be the right option for everyone. For example, the interest rates associated with peer to peer loans are sometimes higher than that of traditional building societies and banks if you have a particularly poor credit rating. At the same time, you may be required to pay a fee to the lending company themselves for them agreeing to arrange the loan on your behalf. This may even happen if the loan is not fully funded, which may lead to multiple fees being paid more than once. What’s more, if you have poor credit you may still find that you struggle to get the money that you need.
How to Apply for a Peer to Peer Loan
In order to apply for a peer to peer loan, you will need to go to one of the available lending sites online today and register. From there, you should be able to select the amount that you want to borrow and how long you want to borrow it for. After that, you should be able to see if you qualify for a loan and what kind of interest rate you will need to pay. It’s worth noting that many peer to peer lenders will parcel up loans between a range of different people. Depending on your credit rating you might be offered less than what you wanted to borrow, or you may be offered a certain amount at one interest rate, and another amount at a different interest rate.
The amount that you can expect to pay on your peer to peer loan will depend significantly on how much of a risk you are considered to be. For instance, if you have a very good credit score, then you may be able to borrow the money that you need at an interest rate of around 7%. However, in some cases, the amount you can borrow will be affected by a variable interest rate, which means that you pay more or less each month.
If you have a very bad credit rating then your interest rate could be as high as 30%. It’s crucial therefore to shop around and make sure that you’re getting the best financial assistance for your available circumstances.
Remember, when you take out a peer to peer loan, if you default on your repayments, the company responsible for setting up the loan may choose to pass your amount owed onto a debt collection agency who will chase you for repayments on the behalf of the people who lent to you. Missing payments or defaulting on even a peer to peer loan will have an impact on your credit rating. Once an agreement for credit is in place, your peer to peer website will register an entry into your credit report in the same manner as any other loan.