Peer-To-Peer Lending- Is It Right For You?

Cash strapped consumers will face increasing difficulty securing credit in the current lending industry. The current economy simple does not support the “free for all” type of lending that has become common over the past few years. While that will probably prevent many borrowers from loaning money they cannot afford to repay, it certainly does not help people who may be facing a financial hardship who find themselves in need of funds to see themselves through tough times. These consumers may find relief through peer-to-peer lending programs. It is important whenever you are loaning or borrowing money to fully understand the terms and conditions of the loan to ensure the action you are taking will improve your financial situation. The following information addresses common questions about peer-to-peer lending.

What is Peer-To-Peer Lending?

Peer-to-peer (p2p) lending is a relatively new method of lending and borrowing money online. Traditionally people who needed cash would either have to go to a bank or use a credit card to fund their purchases. With p2p lending you have the option of getting a loan from a private lender. The theory is that borrowers will be able to get a loan for a much lower interest rate than a traditional loan, while lenders can earn more interest off of the loan then they would had they invested the money traditionally.

How Does It Work?

Although each company has it’s own process, the concept is basically the same throughout the industry. In most cases you (borrower) would fill out a loan application online which lenders then have the opportunity to view or bid on to fund your loan. Your interest rate will depend on a number of factors such as the loan amount and your credit history. Once your loan has been accepted the funds are transferred into your bank account. Payments are also automatically drafted from your bank account each month. As in investor you have the option to bid on or approve loans based on the applicants information. Depending on which company you work with, you may provide funding for all or part of a loan.

Is It A Good Option?

Whenever money exchanges hands in the form of a loan, there is an inherent risk of default. If you are working with a reputable lending company the risk for an invester is no more than a bank would take when issuing a loan. For borrowers who qualify there are definitely benefits that are not available when taking out a traditional loan. The interest rates are lower and the process itself is relatively pain free versus a traditional bank loan.

The p2p lending industry could provide a much needed source of funding in a time when banks are hesitant to loan money. As a social lending network, lenders have the added bonus of knowing they are helping a person in need, while getting a decent return on their investment. If you are in the market for a loan or looking for a socially conscious way to grow your money, p2p lending might be the answer.