What is peer-to-peer lending?
With little savings at hand, where do you run to borrow money to finance your business or when times get short?
We know you’re already sick of high-interest rates from lenders; we are, too. It’s often you get buried and get stuck in the never-ending cycle of debt. Nowadays, there’s this one trend, peer-to-peer lending in the lending industry that you should know (so you know where to turn to when things get tight.)
Photo by Jeremy Paige
What is peer-to-peer lending?
Peer-to-peer lending (also called marketplace lending), is a flexible and low-cost alternative to other types of personal loans and business loans that drown you with high-interest rates. The service matches the borrower and lender through a “marketplace.”
Peer-to-peer lending gained traction through the industry because of its convenience and inexpensiveness that allows you to borrow at least $10,000 or more; even at higher amounts if you have a good credit score and credentials. Individuals or “peers” can apply for a loan without going through a bank or any financial company. It serves and reaches the part of the population that wouldn’t otherwise qualify for a loan in the bank or elsewhere.
How it works
Sign up or become a member at your chosen P2P lender. If you don’t have one in mind yet, look for credible and reliable lenders online or ask for a recommendation from friends.
The lending company earns by charging a percentage of the loan (e.g. 0.5%) to the lender and borrower.
Borrowers are required to submit the necessary information to the P2P lender. The lender will then run several background checks (i.e. credit, employment, personal, etc.) as it’s a standard procedure.
Once accepted, the lender will put you on register on one or four (or five) of their risk categories. This will determine your going rate. After that, your loan then goes auctioned at the marketplace. The lenders/bidders will then review your reasons for applying for a loan, financial history, and personal background/story. The opening price of your loan will be the interest rate.
Accept bids and wait til your loan gets fully funded then you can start celebrating on starting/continuing your venture.
As for the lenders, you also have the option to spread your fund among a handful borrowers. Of course, you choose which risk category you’re comfortable with; as you may know, the higher risk you choose, the higher return you receive.
Advantages of peer-to-peer lending
Fast and easy approval
Contrary to when applying for and working with a traditional lender, peer-to-peer lending approves loans easily and quickly. All you need is to complete a simple application online, wait for the service to contact you, and finally have your bid listed on the marketplace, where investors bid on a loan.
Lesser fees to pay
One of the biggest advantage marketplace lending has to offer is requiring affordable and few fees to qualify for a loan. There are no handful of hidden fees (i.e. application fee, processing fee) unlike those of others. Since this type of service is a non-traditional one, direct contact with the lender requires less and low-cost fees that can be made available to you as soon as possible.
P2P lending is one of the most convenient services in the lending industry. As mentioned earlier, it is quick, easy and much affordable than others. What attracts more borrowers to opt for this type of service than others is the reason that borrowers can get the money they applied for in a day, the same day they submitted their application.
Choose where your money goes
This advantage is one for the lenders and/or investors. Once a borrower’s loan is approved, it is listed straight to the “marketplace.” the marketplace is where all the listings appear and where lenders look for small business/individuals to lend to.
There are a number of factors taken into account before a lender chooses which borrower they should invest in such as the level of risk they each carry. Of course, the higher the risk the higher return of investment you get in turn.
P2P is arguably one of the best loan options out there you can get as an alternative to a business or personal loan. Now that you know what it is and how it works, time to start looking for a P2P company to sign up for.
About Chie Suarez
When she’s not at home binge-watching shows, Chie Suarez writes for MarketLend, Peer-to-peer lending or marketplace online lending company that cuts out the middleman, cuts down on red tape and puts the investors and borrowers in a direct relationship.