Peer to peer loans are getting popular. Know all about them.
What’s a peer to peer loan, you ask? It’s when you need a small, short-term loan and you ask a family member or friend to help you out. The baggage that came along with it was probably the interest you paid. But credit cards and small bank loans helped find a way around the short-term liquidity crunch. Thanks to the internet and the downturn of the economy, peer-to-peer lending has resurfaced in many new areas. You could even get a P2P auto loan today.
Traditionally, P2P loans are the kind of loans you get from non-traditional sources. This means you get money from places that aren’t banks, insurance companies, investment firms, loan sharks, or even credit card companies. Originally, P2P lending depended on social media as the place to connect borrowers and lenders. Now, loan intermediary companies like Lending Club and Prosper have taken over. These companies are also attracting investors that are pumping millions into them. This is giving the P2P lending industry legitimacy.
How it works?
The basic idea is to match a lender to a borrower. Say someone who needs money visits a P2P site. They complete the simple application process by filling out an online application. If the borrower qualifies for a loan, then they’re shown a list of potential lenders along with the terms of the loan and the interest rate. If the borrower sees something that works for them, they finalize the loan and then get their money. Sounds easy. But there’s more. Now that you know the necessary basics, let’s see the good and the bad.
- P2P loans are suitable for people who don’t have great credit and are unable to procure a loan from traditional sources
- The P2P loans sites work a little like auctions where lenders put up their terms and borrowers can pick the lender that suits their requirements
- P2P loan sites also put borrowers and lenders in touch cutting out the middleman who can interfere by deciding the terms, the rates and by taking a cut
- If you don’t make your P2P loan payments on time, the lender can’t take your car away because these loans are unsecured
- In case you have a bad credit history and are applying for a P2P loan, you need to prepare to pay very high-interest rates because unlike baanks, P2P lenders can charge the terms they want
- If you don’t make your payments, then you will have to face negative consequences despite the loans being unsecured
- If you fail to make payments on time, then your credit rating and scores will be hurt
Should you take a P2P auto loan?For many, P2P loans are a great option that allows them to borrow without going using the traditional method to raise money. But whether or not you should take one really depends on you. You must be extremely careful and really understand the lenders’ terms and conditions before you sign on to borrow funds.