Category: Lending


What is Peer to Peer Lending?

Peer to peer lending is quite a new lending process and this means that many people have not heard of it. Some may just know the name but not have much idea of what it means. Others may be worried that because it is not something they know well, they would not want to try it. However, it is worth knowing more about what it is so that you can decide whether you should really ignore it.

A peer-to-peer lending company will bring together lenders and borrowers without using a bank and therefore cutting out the middleman. Savers will often be happy to tie their money up for a while and be willing to do this if they can get a good return. This money is then used to lend to those who need money. The company will do a credit cheque on those who want to borrow money and assess their risk. The cost of the loan will often be determined by the risk level as lenders will only be prepared to take risk if they have the chance of getting a good return on the money that they are lending.

There are different companies that run peer to peer lending schemes and they do things differently. This means that there is no exact way to explain how it works. The details will all be different and the interest rate that you pay will also vary. It can be worth comparing them to other lenders though, find out if they will lend to people like you and compare the rate to other lenders and see whether you think that it is worthwhile. It is really important to find out exactly how it works, how much it will cost and what might happen if you do not make a repayment.

Interest rates can often be lower if you have a good credit rating. It could be worth checking your credit record before applying or any type of loan to make sure that it is correct as you will struggle if you have a bad credit rating. Sometimes. If you do have a bad credit rating, it could be due to incorrect statements on your credit report so it is worth checking. You may also be able to make a few changes, perhaps by paying off a debt or registering to vote, which could make a difference to your rating. Someone with a poor credit rating could end up paying more in interest than other lenders. So again it will be worth checking that credit report.

Another advantage with some lenders is that there is no minimum loan amount. Many lenders will only lend you specific sums of money and the lowest amount that they are willing to lend could be a lot more than you need. This means that you will take on more debt than necessary and you will end up paying for money that you do not need.

One problem with this type of loan is that you will have to pay a fee to the company for setting up the loan request. If no one agrees to lend you money you will still have to pay the fee. You may be able to raise some of the money, all of it or none of it and you will not know until you apply. There will be different protections in place than with traditional lenders and so you need to find out what these are so that you know exactly where you stand.
If you cannot make a loan repayment then the company may pass you to a debt collection agency who will chase the money on their behalf. If you still cannot pay it may go to court. By missing a payment you will have an entry on your credit report, just like other loans which will reduce your credit rating.

If you are considering borrowing some money then this could be an option for you. It is worth doing your own research and find out specifically about the main companies in the market, what their rates are, how they work and what their charges are. It is important to be confident that you know as much as you need to know about them and the way that they work before you borrow from them.