Peer to peer or P2P loans allow individuals to borrow money via an online platform. However, the money is provided by other individuals, not by the platform. There are a lot of peer to peer lending platforms in the UK market that act as matchmakers bringing borrowers and lenders together. The investors/lenders lend out money to borrowers in turn for a healthy return.
How do P2P loans work?
P2P loans connect lenders who want to earn returns and borrowers looking for loans. However, peer to peer lending is less strict compared to other types of loans. Often peer to peer providers offer loan to people with bad credit, and the interest rates are adjusted to manage it.
To get a peer to peer loan, you have to apply online if you meet the criteria. Then you will get a quote from the platform on how much they can lend you and the interest rate you will have to pay.
The P2P platform will process the application, and you will get the funds either from one or multiple lenders. The lenders will be anonymous to you, so you will only communicate with the platform.
Benefits of P2P Loans
Peer to peer loans offers a wide range of benefits compared to a traditional bank loan. The biggest benefit of all is the low interest rate for borrowers, but there are other pros, including:
1. Good Alternative to Banks
Many lenders and borrowers are attracted to bank or building societies alternatives. P2P loans are faster to process and deal better with customers’ need. In addition, the interest rates are lower compared to other options.
2. Taking Big Loans
Peer to peer lending platforms can off loans worth up to £5,000, which is more than what other lenders offer. This is beneficial for people looking to make home improvements, consolidate debts, buy a new car or use the money for business purposes.
3. Everything is Online
The whole process for peer-to-peer lending is online, and there are no shops involved. This is why P2P loans offer lower interest rates to borrowers.
4. Regulated and Secure
The P2P lending industry is regulated by the FCA so that you can feel safe as lenders and as borrowers.
The idea of borrowing from direct lenders may seem a bit off, but it generally is a group of lenders, and their identity is kept anonymous. P2P lenders provide an intelligent platform for investing and borrowing funds.
6. All Credit Histories are Considered
A great thing about these loans is that they are receptive to people with bad credit score, including missed payments and recent defaults. The platforms manage the risk with a slightly higher interest rate, while people with good credit history get to access low-interest rates.
Can you get a P2P loan with Bad Credit?
Yes, you can. People with a fair or poor credit score are put into different categories, and while they might be charged with higher interest rates to manage risk, they are still cheaper compared to credit cards and other short-term loans.
Lenders are happy to fund loans for people with bad credit since they will be able to get high returns for their investment. Plus, in some cases, a credit score doesn’t reflect your creditworthiness accurately. Usually, a low credit score is because of missed or late payments years ago or can even be because of an individual never borrowing a loan previously.
As long as you are comfortable with making repayments on the agreed term, you can get a P2P loan, even with a bad credit score. Maying repayments timely or early can also improve your credit history, as it reflects that you can manage your finances efficiently.
Why is it better to get a loan from P2P lending than a Bank?
P2P lending provides more competitive interest rates compared to traditional banks. Furthermore, the application process with peer to peer lending is completely online and is quickly processed, with money usually available within 24 hours. Since you don’t have to deal with a large corporation, borrowing funds through P2P lending can offer flexibility.
One of the most prominent benefits of p2p lending is that it accepts people with bad credit history, those who are often turned down by the mainstream providers. With P2P loans, such individuals can access funds through peer to peer lenders looking to earn better returns on their investment.
Is it a Good Idea to Invest in Peer to Peer lending?
From an investor’s point of view, P2P lending provides an opportunity to earn at a higher interest rate compared to an average savings account, with returns from 6% to 9% available. The potential return on your investment is based on which borrower you would like to lend to, with customers with a good credit score posing less risk (1% to 3% rates) and customers with a bad credit score posing a high risk. But higher returns.
Overall, the peer to peer lending business model allows lenders to mitigate their risk effectively. Remember that the investments are not protected by Financial Services Compensation Scheme. So, you need to be careful when investing.