Peer to Peer Lending and Loans.
What is Peer to Peer Lending?
It is a service in which people can lend money to other people over the Internet, usually at lower interest rates than standard bank loans and definitely lower than payday loans. While there are a few different companies that offer the service, in general it is when people loan money to others, without using a “middle” man such as a bank or some other financial institution. Most of the lending that occurs over a peer to peer network will be in the form of an unsecured loan.
What type of interest rate can I expect?
The exact rate is impossible to predict until you use the service, as it depends on the amount of money you need, the reason for the loan, and other factors. However, since there are no expensive banks or other financial institutions involved in the process, in general borrowers have the chance to receive interest rates on their loans that are more favorable than they might otherwise get from traditional lending institutions, payday loan providers, banks, or credit card companies. Basically companies that offer this service replace the complexity and high cost of bank lending by offering a more efficient and lower cost way to borrow money.
Lenders can also potentially make more money than they normally would by keeping their funds in a traditional investment such as a bank account. So this type of transaction benefits both the borrower and lender as by issuing a peer to peer loan they will receive higher rates of interest directly from the borrowers that they choose themselves.
What can I get a peer to peer loan for?
You can receive a loan for many reasons, including to help start a business, pay down debt, pay off a higher interest loan, buy a car, or almost any reason. Some of the primary reasons for a loan include small business, home improvement, bridge loans, and debt reduction. Find how to use a peer to peer loan to consolidate credit card debt. More.
Why peer to peer lending works?
There are a few key reasons. One is that lending through a peer to peer lending social network is significantly easier than working with a typical financial institution, such as a bank. You just need to sign up for an account with one of the the many available sites, create a listing for your loan, and monitor the application progress.
Another one of the primary benefits of peer to peer lending is that your desired interest rate can be even lower that other loan types because of the unique model of peer lending. Lenders, who are competing for your business, can result in an even lower interest rate than you had expected or targeted as they are technically competing to offer you money. Of course, not all applications will have multiple parties bidding on the loan, so those may not offer the lowest interest rate.
How does peer lending work?
Typically, they works as follows. Anyone who is looking for some type of loan posts a listing on a social network or peer to peer lending site with the amount they need at an interest rate that they can afford to pay. Lenders, who are for the most part regular people (your “peers”) will bid on the listings by noting the amount and the interest rate that they are willing to lend the borrower. When the listing for the loan is complete, the qualified bids are then combined into a single loan for the borrower. Every month the borrower needs to pay the monthly interest amount that is due to the lenders until the loan is repaid in full.
An example of a peer to peer lending service is Lending Club. It is a social lending network in which members lend and borrow money from others at lower interest rates, therefore bypassing expensive banks. They have already issued more than $900,000,000 (as of 2013) in peer to peer loans at better rates than banks. Another example of a peer to peer lender is Prosper. This site will offer loans up to $25,000, and as of 2013 they have facilitated over $400 million in transactions. Both companies allow people to sign up in minutes, and potential borrowers can apply for a loan and get an instant interest rate quote on their application.