Peer to Peer lending is the new and innovative financial process whereby consumers are able to borrow money without having to go to a regular financial institution or bank. In essence P2P lets you get rid of the institution as middle-man and borrow from people who wish to lend money. It is available from a number of popular and trustworthy websites and the owners of the site will act as brokers by connecting you with lenders suitable to your loan needs or borrowers suitable to your loans.
The advantage of P2P is that it lets consumers get hold of loans at an equivalent or sometimes better rate than they could get at their bank. Additionally it provides another place to turn when banks may have said no to a loan or if you do not want to use financial institutions for an ethical reason. So if you are in the market for a loan for a new business (with little credit rating) or debt consolidation or any other project then peer to peer lending is another place to look.
There are of course some risks for the lender. They will never meet or get to know the borrower and they will not be able to conduct as thorough a review of the lender’s finances as a bank might do. However, should they wish to bring down the risk lenders cam make smaller micro loans to various users of p2p sites and still get a good return on their investment from these borrowers. The sites have a number of options for lenders, including lending solely to one borrower or contributing to their loan as one of a number of lenders.
There are hundreds of P2P sites now out there, with the most famous including Prosper.com and LendingClub.com – all of them will broker the deal and will provide the proper legal contracts for the loan for both the lender and the borrower. These loans will nearly always be unsecured although some of the sites do have an option for securing the loans with borrower’s assets.
The site works with you applying for a loan and stating the interest rate you are able and willing to pay each month. You also fill in details about yourself and your reasons for the loan that the lender can read. Once they have approved your loan the p2p website finalizes terms and then payments are made through the website from borrower to lender.
Alex is a financial writer and blogger. He writes about everything from credit cards to mortgages to tax reduction.
Leave a Reply