Peer to peer lending in work

Have you ever been refused by a bank because the reason you wanted to take money for was risky? For example, taking a loan for travelling or opening your own business?

A peer to peer lending might be very useful for you. P2P lending is a way of online financial investment, which is known as social lending as well. It obtained its popularity at times of financial crisis of the 2008 year. Banks at that time ceased their work, as they couldn’t provide giving payments, and investors understood that those low interest rates from their saving accounts, suggested by banks, will not give a good profit.

Some companies realized that the problem should be solved. They decided to develop websites to give the opportunity to probable lenders and borrowers work together. The mediator (which is a bank, as a rule) wasn’t a part of the process anymore – only the straight cooperation between a lender and a borrower took place now. As lots of people are still extremely vigilant about the banks, the idea of using p2p lending made sense.

Do you think, whether p2p suits you? Or maybe you’re musing about investing in peer to peer loans? Let’s see, which pluses and minuses there are in peer to peer lending.

 Image result for P2P lending

P2P lending in details

Peer to peer lending connects those people who want lend money with those who want to borrow it. Capital investments are made online. There are many various websites, but we recommend the one of the best –

Every website offers its own circumstances, but there are some mutual features, supported by many p2p websites. Payments start from 1 thousand dollars and may reach 35 thousand dollars with a possible period to pay money back of 36 months.

Interest rates are very different (around 4% to 35%) and are connected to a borrower’s credit history, the term of borrowing, the possible risk, so on.

I need to mention one thing too: as lending websites are the intermediaries in the financial processes between lenders and borrowers, they charge a fee, which is usually a 1% per year and is paid by the investor.

How it works

The structure of confirmation and then getting a loan looks this way. A person, who wants to borrow money, is to be checked. After that, if a borrower is suitable, he gets a «loan grade», which helps the lenders to understand the possible risk and to choose more easily. (Plenty of investors have their own criterias for a borrowing person, as they always want to be sure that their investments will be paid back, instead of being lost).

On p2p lending websites a borrower can add a description to his profile, where he describes for what reason he wants to borrow money. The explicit and interesting description always attracts lenders’ attention and raises the chance of getting the loan. Then, lenders offer the sum they can give plus the interest rates for it. As a result – the money from the one or a few investors is credited to the borrower’s bank account.

P2P lending advantages

Advantages for borrowers:

The most significant thing is that in peer to peer lending there is a much bigger chance that a borrower will get money, comparing to a traditional financial institution – the bank. Besides that, the p2p procedure gives you more competitive rate and saves your time, as it is faster.

The other argument for using p2p lending refers to those, who have got the card credit debts. As a rule, such people pay approximately 20 percent interest charges a year, and it’s very expensive. In this way, p2p lending may be a priceless helper, which reduces the charges. It saves much money.

P2P investors will offer you different suitable options, and will help you to spread the whole loan into some small ones with minimal risks if it is necessary.

Advantages for lenders:

Investing money in peer to peer loans can be a good idea, so majority of people use it to get a passive income later. The income comes from the borrower’s returns. And these peer to peer lending interest rates, which you get, are much bigger than the interest from a bank’s deposit. Even though, there is some risk, some lenders find it better than investing in the stock market.

Both for lenders and borrowers, p2p becomes not only a way of investing investing money or borrowing cash, it becomes kind of community, where everyone gets what he wanted.

Challenges of P2P lending

The weighty disadvantage of p2p lending investing is the risk. P2P lending can’t guarantee getting money back, as the loans are unsecured. Some borrowers can be at the p2p lending sites because of the banks’ refused their inquiry. Thus, there is an additional work for lenders appears, as they need to find out and check the borrowers. (Although, some of the lenders find it funny)

Borrowers, as they are given money on peer to peer lending sites, may get a bigger interest rate, established by the lenders. In this case, it can be a pretty good idea to look for different methods of getting money, instead of obtaining a very expensive loan.

We usually don’t like to share own information on the Internet, but for getting a loan it can be required. Of course, no one wants to put the financial story or something on the Internet, that’s why it can be a disadvantage for some people.

And the final point is that a p2p lending investing is quite modern and unexplored to the end thing, so there can appear some unexpected problems, when the danger of closing is one of them.

The final tip

P2P lending in Europe is a really cool thing, but be attentive and even a little bit skeptical. Use different websites, liken suggested circumstances and terms. Good luck!