Over the last decade, one of the biggest changes in the consumer and small business financing markets has been the increased use of peer-to-peer loans. With peer-to-peer loans, a borrower is able to apply for a loan online through a peer-to-peer website, which is made up of thousands of investors whose combined investments are packaged together to provide the loan. There are a variety of benefits for both borrowers and individual investors, which are sure to make peer-to-peer lending a go-to loan option in the future.
Open Credit Market
A main advantage of getting a loan through a peer-lending group is that it is an open and active credit market. Many national and regional banks have greatly cut back on their unsecured consumer lending over the past decade. The peer-to-peer lending clubs on the other hand have expanded greatly in this time, which provides someone with the flexibility to take out a loan to pay off other debt, take a vacation, make a home improvement, or for any other purpose.
Ease and Convenience of Application
One of the best parts of getting a loan through a peer-to-peer lending platform is the ease of applying for the loan. When applying for a personal or small business loan from a bank, you will spend countless hours filling out forms and applications. When applying for online loans, the entire application process can be completed in well under an hour. This application process will require you to fill out a profile, provide insight into the use of the loan funds, and give some high-level financial information about yourself.
Speed of Funding and Approval
Once the loan has been applied for, and you have submitted the necessary paperwork to confirm your identity and financial position, the funding and approval process is very quick. The likelihood of approval and pricing you receive will be based on individual lender interest. In many cases, and depending on the size of the loan, you can receive full approval and lender commitment within just a few days. You can then normally expect to receive the loan proceeds just a few days after that.
True Market Interest Rates
Another advantage of getting a loan through peer-to-peer lending is that you will receive a true market interest rate. On some sites, the investors and lenders are able to bid for a share of your loan and provide a quote for the lowest rate that they are willing to accept. All of these bids are then reviewed and consolidated and those that offer the lowest rates will ultimately win the bids, which helps to reduce the interest rate that you are charged. The actual rate that you receive will normally depend on your credit score, income sources, and the use of the funds. In most cases, these interest rates are lower than what you would receive from a bank or credit union.
While there are clear advantages that come with taking out a loan through a peer-to-peer website, there are advantages provided to the lenders as well. One of the main advantages is that it can still be a fairly attractive interest rate for a low-risk investment. Furthermore, the lenders are able to invest small amounts of capital into many different loan products, which allows the lenders to diversify their risk. Many lenders also like the fact that they are able to separately analyze each loan option and to make the best decision based on the information they are provided.