Peer to peer lending is quite new to the UK but it is taking off in popularity. There are lots of theories on why it has taken off so well but the fact that is it allows better lending rates.
It is this which has helped to secure peer to peer lending stand in the market. As with any financial decision, it is important that you do your research. It is up to you to make sure it is the right decision.
What Is Peer To Peer Lending?
Peer to peer lending tries to cut out the middle man.
In the past, you have always had to go to financial companies for a loan, but with this new type of lending, you don’t have to. Instead, real people lend money to those who need it – with terms that suit both parties.
Much like traditional lending methods, the lender chooses the rate of interest and repayment.
What Are The Benefits?
For the person lending the money, you can often negotiate a deal that gives you a better rate. This is better than if you were to put your money into a savings account.
Borrowers get to borrow money at more favourable rates. These are better than those offered by banks and other professional lenders. You can arrange this through a peer to peer lending site. These websites ensure everyone is credit checked and risk rated.
As someone who wants to borrow money, this can be a reliable and solid way to get your hands on the funds that you need. There are people out there waiting to lend you money. By going through the right peer to peer lending service it could be quick and easy.
One of the things you have to keep in mind is that you don’t have the same protection for your savings as you would in a bank. Although there are certain safe guards in place you could be at risk should disaster strike.
Generally speaking, you do need a good credit score to be able to apply for this type of borrowing.
As real people are putting their own cash, you a need to have a solid credit history. You also need to prove you are able to keep up with repayments.
How It Works
The best thing you can do is join a peer to peer lending site. They act as a marketplace to help lenders and borrowers get matched up. As a lender, you tell them how much money you want to put in and how long for and the website you choose does the rest.
As a borrower, you sign up and get credit checked. You then apply for a loan – in much the way you would if you had chosen a more traditional lending method.
The APR offered for peer to peer lending does vary depending on which site you use. You’re looking between 4.2% and 5.3%, although the borrower’s credit score can affect this.
There are many companies that offer this type of lending. So it is well worth looking into to help you borrow the money you need. Options include Landbay (5.13% pa), Funding Circle (6% pa) and Zopa (4.8% pa).
Can I Borrow If I Have Bad Credit?
At the moment peer to peer lending is generally for those that have a solid financial history. There is not the same protection as traditional loans. People lending money want to have reassurance that they are not going to out of pocket.
So, if you have defaulted on payments, have CCJs or have been bankrupt, the chances are you’ll a different way to borrow.
Subprime lending is a great way for those who have difficulty maintaining repayment schedules. At the moment peer to peer lending doesn’t rival those. This is because they have different target audiences.
With more backing from financial institutes, this could work in the subprime market. This is to give the same protection as banks get when lending for example.
Recently we’ve seen a few peer to peer platforms requiring a form of security to safeguard the loan. This could in the future grow into a form of credit that’s available to subprime users as well. Whether these initiatives succeed remains an important question.
We at CashLady welcome this move and think it could benefit our customers. Giving lower rates and better products to suit their needs.