New age loans – Peer to Peer Lending

New age loans – Peer to Peer Lending

Credits : http://blog.lendingclub.com

In today’s loan industry we witness a lot of different loan products which cater to a lot of needs and all these loans work on the traditional system where a loan agent lends the loan amount to a person who is need for the money for a fixed interest. Then came the time when innovations took over the loan industry and witnessed the emergence interesting system of Peer to Peer lending. In this system a mediator establishes platforms where they connect people who need money and who has money and the parties come into an agreement over an amount and interest rate. The process of availing a peer to peer loan starts with a need from a party for a loan and this need is registered along with an interest rate that he can afford, the mediator who then displays it in his platform for prospect parties who have spare money to lend. If the terms are acceptable by the lender party then they strike a contract over the amount and the interest rate.

Peer to peer Lending has both advantages and disadvantages and with careful assessing you can find yourself with a good bid in terms of interest rate and the reduce the complications of applying for a regular loan.

Pros:

  • Rate bargaining: Chances are high that you end up with a lower interest rate loan as peer to peer lending process involves lesser overhead costs and along with the large number of lenders you can choose a bid that you feel would do justice to your repayments.
  • Process: The application process is comparatively simple and involves lesser formalities than a regular loan application form. You would be still subjected to the routine income check and will know the decisions relatively faster than traditional ones.
  • Flexibility: Peer to Peer loans are flexible in their approvals compared to traditional loan providers and there are higher chances of getting a loan from peer to peer lending than from a bank.

Cons:

  • Repayments: Peer to peer lending generally involves a shorter repayment period as compared to a traditional loan provider as the investors involved would not be ready to block their funds for a long period of time. This can serve to be a problem if you want to reduce to payment and spread it over a long period of time.
  • Interest Rate: Interest rate in the cases of peer to peer lending can be both an advantage and a disadvantage as investors will charge high interest for borrowers who are low on their credit scores, this can be tough on the part of the borrowers.

As you have seen the pros and cons of the peer to peer lending and even with these drawbacks peer to peer lending is a good option to raise money with less risk by proper bargaining and by your ability to sense a good deal.