Are you looking for the best funding source to take out a loan and fulfill your financial needs? The first source that comes to your mind is taking out money through traditional lenders or bank loans. No matter how efficient you are in managing your finances but there are some unforeseen circumstances when you are out of budget. In the past, there were a few options to get loans, but now several alternative finance options have emerged. One popular lending source nowadays is peer-to-peer lending, that is offering numerous benefits to borrowers and investors. You do not need to go to the banks, complete lengthy paperwork, or wait for weeks or months to get approval.
P2p lending operates through online platforms and eliminates the need for any intermediary or traditional financial institution like a bank. Peer-to-peer platforms act as an intermediary and do all the hard work for the borrowers and investors. These platforms handle all the things from selecting borrowers to setting interest rates and transfer of funds to receiving repayments. Investors can start investing by creating an account and getting steady returns. They can also get their returns in tax-free wrappers by investing in peer-to-peer loans through IFISA.
One most attractive things in peer to peer lending for borrowers is that they can get loans quickly at a lower interest rate than the banks. Moreover, the application process for p2p loans is easy and only takes a short time to complete. You can take out a loan for several purposes such as home renovation, paying utility bills, car repairs, or debt consolidation.
Now let’s take a look at the advantages of p2p loans over conventional loans so that you can choose the right funding source for yourself.
Easy To Shop Around
Shopping for p2p loans is straightforward and simple compared to traditional bank loans. When you want to take out a loan through banks, you have to complete lengthy paperwork or documentation, and even after that, you have to wait for a long time to get approval. In contrast, shopping for a loan from p2p lenders is a two-step process. The first step depends on the credit score of the borrower, and when you make an application, you have to provide some necessary information such as your name, address, income proof, the amount you want to borrow, and for how long you want to take out a loan. On the basis of this information, a lender offers a loan deal that can fulfill your needs.
If you find a deal according to your requirements and accept the offer, your lender will carry out a strict credit check and also ask you to provide some additional information and verify your source of income. The eligibility criteria can vary from platform to platform. The information you have to provide can also vary. Some platforms want you to provide a history of financial assets, while others want to get your educational information. You have one benefit that you can submit your documents electronically.
Once you provide the required documents and information, the p2p platform assesses this information to finalize the decision. It can take a few hours to days to complete the processes depending on the lending criteria of the platform and the amount you want to borrow. To provide more ease, most p2p platforms use an automatic payment procedure through which you can get the funds in your bank account within a few days after approval.
Less Impact On Credit Score
Whenever you apply for a loan, either a p2p loan or standard bank loan, you have to pass through a credit check that can impact your credit rating. In the case of p2p loans, the initial credit check is called a soft inquiry that doesn’t cause any impact on credit score. On the other hand, when you apply for a bank loan, you have to pass through hard inquiries, and credit checks are reported to the national credit bureaus. As a result, your credit score goes down several points temporarily.
Peer to peer lending platforms also carry out a hard inquiry in the second step of application approval. At this step, the lender also sees your full credit report. If your application is approved, your credit score goes down a few points. It means your credit score always goes down when you take out a loan. Your credit score goes down and makes it harder for you to get a loan in the future. However, if you repay your loans on time, your credit score will bounce back. The initial credit check of p2p loans does not lower your credit score, so it is easy for you to shop around for different platforms and find the best deal.
Low Borrowing Cost
The annual percentage rate of peer-to-peer platforms has a wide range. It can start from as minimum as 5.49% and can be as high as 35.89%. The interest rate highly depends on your credit score. If your credit score is high, you can secure a loan at a low-interest rate and vice versa. Other than that peer to peer platforms charge several fees from the borrowers that add up to your borrowing cost. But you must keep in mind that since p2p platforms operate online, there are fewer overhead charges.
In addition, the interest rate you get on p2p loans is lower than those of traditional loans. P2p platforms also offer loans to those who find it challenging to secure a bank through traditional lenders due to bad credit scores. You can also repay the loan early without paying any early repayment fee.
If you have decided to take out a loan through a peer-to-peer lending platform. You should always shop around and make price comparisons to choose the right platform. Read the fine print available on the lender’s site to understand terms and conditions and always try to improve your credit score to secure a loan at competitive rates. If you are thinking of investing in p2p loans, try to invest through IFISA so you can get tax-free returns and get higher returns compared to traditional loans.
Although peer-to-peer loans offer several benefits such as low-interest rates, quick access to funds, and an easy application process, there are some situations where these loans do not match your needs. And you have to take out loans from traditional lenders. Therefore, it depends on your personal circumstances, whether a p2p loan or a conventional loan. However, with p2p loans, you can enjoy the benefits we have described in this article.
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