Peer to peer loans allows borrowers to take loans through online platforms. What makes these loans different from traditional loans is that the loans are granted by other individuals instead of a bank or any financial institution. That is why it is named peer to peer. There are several p2p platforms present in the UK which act as matchmakers or middlemen between investors and borrowers. You can take out a loan through the p2p platform that can be repaid over months or years. This loan is similar to online personal loans, though the interest rate you have to pay depends on your credit score. The credit check is carried out online, and if your application is approved, you can get the loan within the shortest possible time.
How Do P2P Loans Work?
Peer to peer lending platforms connect lenders with potential borrowers. P2p platforms have less strict criteria compared to banks and other financial institutions. You can get a loan even if you have a bad credit score. However, the interest rate is adjusted according to your credit score to manage the risk. You can apply online for a loan, and if you meet the criteria, you will get a quote on your screen that describes how much you can borrow and what the interest rate is. P2p platform presents your loan to several lenders, and you can get a loan from a lender who meets your requirements. You do not have any direct contact with the investors, and they will be completely anonymous to you.
Benefits Of P2p Loans
Peer to peer loans offer you several benefits compared to traditional bank loans. Typically, the low-interest rate is the most attractive thing for the borrowers. Some other benefits are as follows:
Take Out Large Sums
P2p lenders allow you to take out a large sum as compared to payday or guarantor lenders. It can be beneficial for you if you are looking for funds to settle debts, renovate a home, repair a car or solve your business cash flow problems.
Quick Access To Funds
P2p loans act as great alternatives to traditional bank loans. When you take loans from banks or financial institutions, you have to complete lengthy paperwork and still wait for weeks or even months to get the funds. In contrast, p2p loans allow you to get quick access to funds. The application process is simple and easy, and there is no hassle of lengthy paperwork. You can apply online for a loan and get the funds in your bank account after approval. Usually, you can get funds within two weeks after the approval of your loan application.
Regulated And Secure
Almost all the peer to peer lending platforms in the UK are regulated by the Financial Conduct Authority (FCA). It means when you can feel safe while taking out a loan through a p2p platform.
All Credit Histories Are Considered
Peer to peer loans is especially beneficial for people who find it challenging to secure loans from banks or other financial institutions. Such as people starting a new business or individuals with poor credit histories, missed payments, and recent defaults. The p2p platforms charge slightly higher interest rates from such borrowers. However, borrowers with good credit scores can secure a loan at low rates.
Another benefit of p2p loans is that you do not need to go to a lender’s office or to a bank to apply for a loan. From completing loan applications to finding the right lender and transferring funds to collecting repayments, all the processes in p2p lending take place through online p2p platforms.
You may find the idea of borrowing from other individuals awkward, but usually, you are borrowing from a group of investors. However, these lenders are entirely anonymous to you. P2p platforms offer intelligent ways to borrow and lend money.
Can You Get P2p Loans With Bad Credit?
Yes, you can get a loan through p2p platforms even if you have bad credit. Peer to peer platforms place borrowers of different credit scores in various categories. Although you have to pay a high interest rate if you have a bad credit score, it is still lower than many credit cards and short term loans. Investors who are ready to take risks and earn high returns are most likely to lend money to borrowers with a low credit score. Moreover, it is not necessary that your credit score reflects your creditworthiness. Sometimes your credit score was low due to a missed repayment a long time ago.
As long as you are able to repay your loan amount, you can take peer to peer loans even if you have a bad credit rating. You can improve your credit score by repaying the loan amount on time or early. It helps you in improving your credit score and proving that you are able to manage your money.
Peer to peer lending offers different types of loans to the borrowers without the hassle of lengthy paperwork and personal to personal meetings with the lenders. From the investors’ point of view, p2p loans provide an excellent opportunity to earn high interest without taking much risk. P2p platforms take measures to reduce the risks for the investors. However, if you are thinking of investing in p2p loans, keep in mind that your investment is not protected by the Financial Services Compensation Scheme. So you must be careful and choose the loans according to your risk tolerance.