What are P2P Loans?

Peer-to-Peer (P2P) loans are a sort of system of loans that have risen up recently, with the help of the digital world. To get involved in them, you have to look for them on your computer online. What’s more, traditional lenders do not offer such services. These are loans that happen directly between people, usually on some sort of website or app that allows people to transfer money. Obviously, in the past, people would have certainly been able to make loans, but the online format means that one can always find a loan at any point in time.

Why a P2P loan?

You may thus be asking yourself, why would people consider P2P loans if bank loans are available? Surely bank loans are far more rigorous and mean that no-one experiences any injustice? Well, the thing with most bank loans is that if anyone wants to get one, they need approval. This sort of approval often needs a spotless record on your credit score, and for you to generally appear eligible. By setting up these hurdles, banks can ensure themselves that they are dealing with someone who is very likely to pay back their loans. This is why people are quite likely to default to P2P loans. If they are in a desperate situation and need the money, many people have no other choice, and there is likely someone out there who will lend them money whatever their history. They will likely take such a loan even though many have higher interest rates than traditional institutions.

There is obviously no regulation here in most situations. Therefore, the leniency of the person you have received the loan from varies depending on the individual. It is likely you have no contract either, which may mean the lender could change their interest rates at the flip of a switch. This would obviously quite disadvantageous for anyone with a loan.

However, the good news is that there are some channels which one can go through to reduce these occurrences with P2P loans.

More favourable P2P loan channels

There are some companies online that will deal with all the headaches that one can associate with online dealing with loans. They provide contracts, they process all transactions and calculate interest. This means that all the transactions one may need to carry out are already regulated. There is no headache in figuring everything out, and the chance of any fraud is reduced. In fact, these sites also allow for borrower evaluation. By using this, loaners will be able to evaluate who they are providing loans to and decide how risky the transaction may be.

There are many such sites available. Prosper was one of the very first of these, and greatly promoted the format for all sorts of people to use further on. Other such lender programs include Lendingclub and Upstart.

The advantages of the loans

So, with all that in mind, what are the greatest advantages of getting a P2P loan?

Well, first things first, there is the cost. We have indeed mentioned that the interest rates in P2P loans tend to be higher than with banks. Some even go up to as high as 8%. However, regardless of this, the prices you have to pay do tend to be lower in comparison to institutions to payday lenders. This makes such loans the most desirable option if you need a quick loan without a background check. For the best lenders, P2P interest rates tend to also be more fixed, so you will not get any sudden surprises.

Secondly, as we said before, you can reach anyone in the world with P2P trading. Even if there is no-one available to offer you a loan in your local area, you can still get a loan worldwide. Therefore, you will likely always find someone willing to lend you a loan.

A rough guide on qualifying for P2P loans

So, how do you qualify for a P2P loan? First off your credit score does still matter, although it does not have to be as high. Each lender chooses the risk they will take, so there is no one defined number. Your income also matters. You will likely fall into different categories depending on these two pieces of information, which are divided according to the risk they carry.

Conclusion

So, there you have it. There is a rough guide on what P2P loans are, their advantages, and how to qualify for them. They are relatively safe, and are generally a better option than payday loans, but not as optimal loans. Whether you feel the risk of taking such a loan is worth it is up to you.