Peer to peer lending is a way of lending in which individuals or businesses borrow money directly from one another without involving a bank or financial institution. Over the past few years, this type of lending has become very popular due to its benefits and flexibility for both borrowers and lenders. Due to increasing popularity, the number of p2p platforms and types of loans they offer is also increasing. The qualified borrowers on p2p platforms can secure a loan at rates lower than that of bank loans, while investors can get returns that they can not get anywhere else.
Now, most peer to peer lending platforms offer loans that banks and loan sharks only provided in the past. Here are some major types of p2p loans that popular p2p platforms present in the UK.
Personal Loans
Personal loans are the most common type of p2p loans, and the p2p industry was started from such loans. Flexibility is the characteristic of such loans as p2p platforms have fewer restrictions compared to standard bank loans. Moreover, banks usually provide loans to individuals with a high or average credit score, while p2p platforms even offer loans to those with bad credit scores. Personal loans are small and unsecured loans, and you can use them for a number of reasons such as car repair, paying utility or medical bills, home renovation and settling debts. Most frequently, such loans are used for debt consolidation because other forms of credit are expensive.
However, the interest rate depends on your credit score. If you have a high credit score, you can get a loan at a reasonable interest rate. Most p2p platforms offer personal loans to the borrowers at a fixed rate that they have to repay after a specific period. With p2p loans, you can get quick access to funds compared to other forms of borrowing.
Business Loans
These are the small loans that are offered to trading limited companies. Peer to peer lending platforms are rapidly filling the niche of business loans, which is a good thing. Although many banks state that they are providing business loans, they have strict lending criteria and lengthy documentation that they do not make as many loans as they say they do. P2p platforms offer the same type of advantages as business loans that they provide to other loans. It includes an easy application process, low-interest rate, high credit flexibility, and quick access to funds. They usually offer a loan to small and medium-sized businesses. Business loans can be secured against a valuable business asset or personal guarantee from directors or shareholders. The lending criteria may vary from platform to platform. Most commonly, this type of loan is used by businesses for business expansion, asset finance and working capital. For small business owners and startups, it is nearly impossible to secure a loan from banks. Peer to peer lending offers them an excellent opportunity to get a loan and grow.
Property Loans
P2p platforms offer property loans to both individuals and companies. As we know that it is very complicated to get a mortgage loan from banks, it takes a long time to secure a loan. So people are looking for property loans that are easy to secure. Property loans at p2p platforms are easy to access as compared to mortgages. You can get a loan by using your property as collateral against the loan. This type of loan carries fewer risks compared to other p2p loans. If a borrower defaults, the platform has a right to sell the property to get the loan amount back. Lenders use third party professionals for the valuation of the property before granting a loan. These types of loans are commonly used for personal mortgages, property refurbishment or renovation, buying to let or purchasing a property at auction.
Student Loans
Peer to peer lending platforms also offer student loans that are very helpful for borrowers. Although you can get student loans from a number of resources, such as the federal government and banks, it isn’t easy to find lenders who offer student loan refinancing. P2p platform offers student loan refinance. However, you should keep in mind that it might be challenging to get a refinance loan as compared to the original loan. You must be credit and income-qualified to get a refinance loan. P2p platforms do not charge any additional fees, and you only have to pay the interest rate with the loan amount. You can easily get a p2p student loan when you find it challenging to get such a loan from anywhere else.
These are the major types of p2p loans, but some p2p platforms also offer other types of loans that include auto loans, medical loans and bad debt loans.
How To Qualify For P2p Loans?
If you want to take out a p2p loan, you have to choose a platform. There are a number of p2p platforms in the UK, so you must shop around to find the one that follows best lending practices and offers competitive interest rates. After choosing a platform, you have to make an online application and provide the necessary information. P2p platform determines the interest rate on the basis of credit score and length, and amount of loan. The credit score that you need for qualifying may vary, but generally, a credit score of more than 600 is required. The better your credit score, the lower the interest rate. You should apply for a loan only when you afford to repay it on time. Otherwise, you have to pay heavy late repayment charges. And if you default on a loan, the p2p platforms can use a debt collection agency to get the loan back, and in this case, you may have to go to court.
Peer to peer lending is an excellent alternative to traditional forms of borrowing. You can get quick loans at easy terms and a low-interest rate. You can get loans for a number of reasons and also the loans that are not available anywhere else. Whereas innovative finance ISA is also a good way to invest your money.
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