Most people come across a time or a phase in life where they need a little help financially. Perhaps you are trying to make a big ticket purchase such as a new car or a deposit for a house, or maybe it’s something a little smaller like a holiday and you are just having a hard time coming up with enough funds. While credit cards or a bank loan may work for some, it’s not going to be the best solution for everyone.
Enter in the new trend when it comes to lending – the trend of peer-to-peer lending. It builds on the idea of borrowing from a friend and takes it to the next level by connecting people from all over the place. In order to understand peer-to-peer lending better, and to figure out if it’s right for you, it’s necessary to take a look at how it has evolved over the past decade.
What is Peer-to-Peer Lending?
As its name implies, peer-to-peer lending is the lending of money between peers and completely foregoes a traditional financial institution like a bank. While it’s not exactly a new idea, it’s only been this past decade where it has really started to catch on and trend.
Thanks to advances in technology and people’s use of mobile devices, this sort of lending option has created an online marketplace. Today, people are able to connect to these various P2P lending agencies online with ease and go through a relatively quick application and approval process.
And it’s not just about lending. Here in the UK, there is also a savings aspect to it. When you are using it as a savings option, then you have the ability to take advantage of higher interest rates for any money you invest in the platform.
So, it’s a two-way street where some people are looking to borrow money and others are looking to lend out money. The bank and other traditional lenders are being cut right out of the process.
Lending Platforms Meant to Help People Out
This brings us to the lending platforms. These platforms aren’t the ones who are lending out the money; instead, they help to connect you with people who want to lend money. What this means is that you don’t have to spend all kinds of time seeking out a lender on your own. This also gives you the ability to shop around for the lowest lending rates, which already tend to be lower than what the banks offer.
Perfect for Those Looking to Get on the Property Ladder
One group that can really benefit from peer-to-peer lending are those who are looking to make their first property investment and get on the first rung of the ladder. Perhaps you’ve done your research, taken some investment courses through an online property investment platform like Sourced, and now you’re ready to jump in. Well, just because you’re ready and have the knowledge to invest, it doesn’t mean you have the funds.
Peer-to-peer lending can provide you with that down payment you need or maybe some extra cash to do renovations on your investment property, so you can then sell it and make a profit. Many P2P lending platforms let you pay off your loan early, which saves interest.
Make Sure You Still Do Your Research
Just as you probably wouldn’t rush to sign a loan with the bank without asking questions and looking into various rates, it is advisable that you take the same approach with peer-to-peer lending.
Here in the UK, popular peer-to-peer lending sites such as Funding Circle, Ratesetter, and Zopa allow you to actually compare different loan rates and also do a little research on the lender. You want to make sure you are signing on with a legitimate lender who also has a good solid reputation.
It’s also important you are aware of any fees the peer-to-peer lending sites may charge. It’s quite normal for them to have their own fee for using their platform, which means you need to include that in the equation.
Depending on the site you use, the lender will also have full control over who they lend to, or they may just have their money automatically divided between borrowers without any say in the matter. This may be something that affects how much you can borrow. Again, it all depends on the site.
A good general rule to keep in mind is that if you are considered a high-risk borrower, then you are likely to pay more in interest charges, just like you would at the bank.
It Could be the Right Solution for You
So, while a peer-to-peer lender may not be the best choice for everyone out there, for some, it’s a great route to take and will give them access to the cash they need.