A decade ago, people mostly borrow money from traditional financial institutions but with the advancement in technology, there have been some recent changes. One of such changes is a peer to peer lending, where borrowers link up with private money lenders to get loans without the stringent rules of the traditional method.
If you’re tired of the rigorous stress involved in getting loans from traditional financial institutions, then keep reading.
In this article, we’ll be discussing in detail all you need to know about peer-to-peer lending platforms.
What Is A Peer To Peer Lending?
Peer to Peer Lending or p2p lending allows individual borrowers to get loans directly from various individual investors. It enables individual borrowers and lenders to perform money transactions without the help of a traditional financial institution or broker.
Peer to Peer lending is a substitute for the traditional method of lending or getting credits from financial institutions.
What Are Peer To Peer Lending Apps?
Peer to Peer lending apps is mobile or web applications that were developed solely to connect individual borrowers and lenders.
How Does Peer To Peer Lending Work?
Peer to Peer lending apps is online platforms that bring individual borrowers and lenders together. These apps earn profits through fees they charge the individual borrowers and lenders. Each user on the platform has equal rights.
The p2p lending platform serves as the only intermediary that handles all the financial procedures. Peer-to-peer lending platforms involve private individuals or entities who lend money to borrowers.
You can easily borrow or lend money through a peer-to-peer lending platform. All you have to do is download the apps and sign up. After signing up, you can then select the amount you want to borrow or lend, along with the right interest rate, and then connect your bank account.
Peer to Peer lending enables you to select an agreed interest rate or designate it through a reverse auction, selecting the best interest rate from various lenders. Peer to Peer lending apps is more flexible than traditional financial institutions. They make borrowing or lending money easy.
What Are The Benefits Of Peer To Peer Lending?
Some reasons why people use Peer to Peer lending platforms are:
- Favorable Rates
P2P lending platforms offer good rates, you’ll not be paying any additional money for banking services, unlike the traditional method.
You’ll only be required to pay whatever interest the lender request along with the fees for using the platform.
- Safety and Trust
The absence of mediators or brokers from peer-to-peer lending apps doesn’t mean it’s not safe or secured. You can trust the platform’s security system and the parties involved thanks to the several levels of inspection and authorizations they go through.
You’re mostly required to provide scanned copies of your documents to prove solvency. Though, most people tend to have a second thought before using these platforms.
- Convenience and Cost Effectiveness
One of the beautiful benefits of peer-to-peer lending apps is the fact that it is convenient. You can easily avoid annoying queues, personal confrontations, and more.
The platform promotes loan repayment in one digital space faster and more efficiently, all from the comfort of your home or anywhere.
- Tailored loan conditions
The processes involved in peer-to-peer lending apps for both parties are autonomous. The platform can easily determine the loan conditions such as the interest rate, amount, and deadlines. It is flexible for people who are tired of the rigorous rules involved in the traditional method.
- Multiple Customers for a single lender
With peer-to-peer lending apps, lenders can enjoy the benefits of lending to several borrowers at the same time. The procedure involved allows you to transact with multiple borrowers easily and more flexibly.
What Are The Disadvantages Of Peer To Peer Lending
Everything that has benefits will always have disadvantages because nothing is perfect in life.
So with that, we’ll be looking at a few disadvantages of peer-to-peer lending apps.
- Loan amounts are lower
Though most peer-to-peer lending platforms are secured and trusted, they’re still limited in terms of how much they can loan out. You can borrow tens of thousands but not close to millions on p2p platforms, unlike the traditional financial institutions.
- Limited accessibility
Some people are restricted from borrowing or lending on peer-to-peer lending platforms. If you have a low or poor credit rating, you might have to pay interest rates that are higher than the ones offered by traditional financial institutions.
- Debt Collectors are present
Though these platforms are automated, you will not be offered protection if you don’t meet up with the deadline for loan repayment. They might make use of debt collectors that would forcefully take the money from you by suing you in court.
What Is Private Money Loan?
Private money loans are loans given by private individuals or entities without mediation from traditional financial institutions. Private individuals that lend money are simply known as private money loans or private money.
Private money is usually given to borrowers without the usual traditional procedures required by traditional financial institutions.
This could be risky for both parties because the borrowers can easily spend the money on things other than the real purpose it was meant for. While private money lenders could take any means possible to ensure they get back whatever money they must have loaned out.
The more complex the need the loan is meeting the higher the interest rate charged by lenders. Some factors private money lenders consider before lending out money include:
- Borrower credit
A borrower’s credit score reveals how consistently and quickly a borrower has paid off his or her previous debts.
- Pricing Strategy
This involves how a lender ensures that the cost of the loan is competitive with other lenders.
- Exit Strategy
This is the schedule for the borrower to repay the loan and how they plan to do so. Every private money lender needs to verify any information provided by borrowers before giving out loans. If you also intend to borrow money, it is good to check out the source of the lender’s income. Ensure you borrow money from legit lenders
Most private lenders adhere to federal and state usury laws and a few times to banking regulations as well.
What Is A Bad Credit?
Bad Credit refers to an individual or entity’s history of failing to pay their bills at the appropriate time as well as the likelihood that such would continue in the future.
Bad Credit scores that are between 300 to 499 are considered very poor, 500 to 600 are poor, 601 to 660 are considered fair, 661 to 780 are good, and 781 to 850 are excellent.
If you have a bad credit score, then you’ll find it very difficult to borrow money, especially at a high-interest rate. No matter the type of loan you need, you’ll find it very hard to borrow money or get loans.
There are several p2p lending platforms that you can borrow from if you have a bad credit score. Some of these platforms include Peerform, SoFi, Lending Club, Prosper, and upstart.
However for you to qualify for the loans, you must have a credit score of 600 or higher but nothing below that.
What Are The Types Of Peer To Peer Loans?
Some current peer to peer lending loans available are:
• Personal loans
These are popular types of loans offered by private money lenders on p2p platforms. They come with fewer restrictions, less paperwork, and lower interest rates.
These loans cover various needs, you can use them to settle different types of bills.
• Home loans
You can also borrow loans from these platforms if you want to purchase a new property, renovate old ones, or furnish it.
Here interest rates are calculated based on your paying capacity.
• Medical loans
Since some medical or health insurance plans are expensive or unaffordable, you always apply for these types of loans on peer-to-peer lending platforms.
• Educational loans
Most students or individuals need finance to cover their educational needs or pursue higher qualifications. Sometimes, you might not have enough resources to apply for your dream university because of high expenses, now, p2p lending platforms have made this easy for you.
• Car loans
Car loans on peer-to-peer lending platforms work the same way as home loans, however, the interest rates may be higher.
What Are The Best Peer To Peer Lending Apps In Canada?
Here we’ll be looking at the best peer-to-peer lending apps in Canada. They include:
Gopeer is a Canadian peer-to-peer lending platform that connects credit-worthy Canadians seeking loans with Canadians looking to invest.
The Toronto-based company only gives out loans to borrowers whose credit scores are 600 or above and a credit history that spans a minimum of 36 months. You can borrow up to from $1,000 to $25,000, with terms ranging from three to five years.
Gopeer’s has strict lending regulations compared to other peer-to-peer lending platforms, so they might not be your first choice if you’ve got a bad credit score.
2. Lending Loop
Lending loop is one of the best peer-to-peer lending platforms in Canada that was launched in 2014. It is the best for small businesses.
The platform is located in Toronto and they’re regulated in all Canadian territories. Small businesses can borrow up to $500,000 on the platform, and the rates vary from 4.96% to 24.93%.
If you’re a business owner who would like to get loans on the platform, you must meet certain criteria, such as earning $100,000 or more in yearly revenue as well as having a credit score of 600 or higher.
You can find various options available for lenders if you want to be a lender. If you’re interested in investing, you can use the auto lend feature to automatically invest in a group of loans based on the risk attributes they pre choose.
3. Reddit (r/borrow)
Though Reddit is mainly known as a news and discussion website, it has another arm called r/borrow that handles borrowing and lending.
r/borrow is a subreddit on Reddit created in 2014. It aids members of the Reddit community gain access to short-term funds. This platform however has a smaller amount of loan compared to other peer-to-peer lending platforms, with its limit at $1,000.
It takes an informal approval procedure to get loans on the platform and it doesn’t require any credit checks. You should know that getting a loan on this platform could take a while because you must be a member of the subreddit community for 90 days before making a request.
You must also have 1000 or higher karma points, this is part of the scoring system unique to the community that measures your contribution.
What Are The Best Peer To Peer Lending Apps In Nigeria?
Some of the best peer to peer lending apps in Nigeria are:
This happens to be one of the best peer-to-peer lending platforms in Nigeria where you can earn higher returns from lending cash to people.
Investors over the age of 18 with legit sources of income can offer money to borrowers. You can choose whatever sectors you’d like to invest in.
The platform was established in 2016. If you have any amount from 50,000 nairas and above you can invest in loans on the platform. The interest rate ranges from 12% to 40% and lasts 6 to 18 months. There’s also a safety fund where investors are reimbursed if a borrower misses their loan deadline.
Fint is another Nigerian peer-to-peer lending platform that was launched in 2017. Here, as an investor, you can sign up, find your account, and finance loan requests from various anonymous borrowers.
If you’re interested in getting loans, you can easily sign up on the platform, and make a loan request. Borrowers on this platform are screened using algorithms.
Lenders on Fint can also choose the businesses or sectors they want their funds to go into. And you can get returns as high as 39%.
SukFin is a peer-to-peer lending platform that helps SMEs get loans to finance their businesses. Using unique technology and expertise, they connect SMEs with various lenders across Nigeria.
You can easily request loans on the platform if you provide them with the requested information. Once satisfied with your profile or information, they’ll approve your loan application and connect you to investors.
They’ve helped various users get access to invoice financing, equipment leasing, startup capital, and more.
1. What peer-to-peer lending platforms?
Peer-to-peer lending platforms are platforms that connect borrowers looking for loans with private money lenders.
2. What is the minimum credit score required to get a loan?
If you have a credit score of 600 or higher then you’re eligible for loans on peer-to-peer lending platforms. Anything below this might not be favorable.
3. Is peer-to-peer lending bad?
While p2p lending has its benefits, it could be bad as well because some loans given to borrowers might not be recovered since they have no collateral.
4. How much money can I make as an investor on p2p lending platforms?
The amount of profit you make as an investor on p2p lending platforms depends on how long you’re willing to lock away your funds and who or what you’re investing in.
Peer-to-peer lending can be a good option for you if you are tired of the lengthy process involved in getting loans from traditional financial institutions.
They’re more affordable, flexible, and better than payday loans. Before engaging with any p2p lending platform, ensure you do your research whether as a borrower or lender.
Lenders should thoroughly check the history of who or what they’re committing their funds to before doing so. If you also intend to borrow money, ensure you thoroughly read the terms and conditions of each offer before making a choice.
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