Anyone who is looking to borrow money knows how difficult it can be to turn to friends and family during your time of financial need.
As if the act of asking isn’t difficult enough, owing the money hovers over you until it is paid off. In some extreme cases, your relationship with the person will be damaged by your loan agreement.
Peer-to-peer personal loans are a similar option without the hassle of interpersonal relationships. Peer-to-peer lending is just as it sounds; one person with the funds to lend provides money to an individual who needs it under a mutual agreement.
The lending can be broken down for further explanation by looking into the lenders and borrowers.
It’s important to also acknowledge that peer-to-peer lending is not available everywhere and some states may have restrictions on peer-to-peer loans.
Peer-to-Peer Lending Pros & Cons
Who Are the Peer-to-Peer Lenders?
Qualified investors can apply to be lenders at participating companies such as Lending Club or Prosper.
Lenders put their investment money into loans in an effort to get returns. They are investing their money into borrowers.
What many lenders like about these investments is that they can go and look over what loans to invest in and choose the ones that are right for them rather than throwing money at any investment.
Depending on the company, lenders may invest in more than one loan.
Learn more about personal loan lenders, compare rates, and choose your best personal loan.
What Kind of Borrowers Use Peer-to-Peer Loans?
Those looking to borrow money may be in for a bit more work than just an application. Depending on the company, a borrower is likely to need a credit score within a certain range.
They will have to be at least 18 years old and their income-to-debt ratio also needs to fall within a particular range.
Applicants will pass an initial screening and then move forward to loan options. A borrower’s listing might display their name, credit score, the amount needed, and why they need to borrow the money.
Peer-to-peer loans are similar to personal loans as they are often used for home repairs, medical expenses, or even accumulated debt.
Depending on the amount being borrowed, an investor can fund the entire loan or only a portion of it. Borrowers might then owe more than just one person.
Another reason a borrower might prefer a peer-to-peer loan is that it could carry a lower interest rate than a credit card.
Interest rates are often based on several factors like the loan amount, the payback period a borrower chooses, credit score, and ultimately what the company decides on.
How Does Peer-to-Peer Lending Work?
Should You Get a Peer-to-Peer Loan?
If you’re looking for more than just a handout, peer-to-peer lending might be an option for you.
Whether you need to cover auto repair or are looking to make some changes in your small business, find a lender that looks at more than just your credit score. AmONE can help you get all the information you need about peer-to-peer lending.
Frequently Asked Questions (FAQs)
Are peer-to-peer lenders safe?
Yes, even though they are not banks, peer-to-peer lenders must adhere to the same security measures that are required from any personal loan lender.
Can anybody get a peer-to-peer loan?
While these lenders are able to offer flexibility that other lenders may not be able to offer, there are still credit score and income factors borrowers must meet. You may be able to find a lender who will offer some leeway here since individuals are helping decide who borrows money.
What are some peer-to-peer lenders?
Peer-to-peer lenders include Kiva, UpStart, and Prosper, though there are several others available as well.
