Peer to peer loans are made to individuals by individuals without the assistance of a traditional financial institution. New peer to peer loan sites serve as a sort of financial-EBay where borrowers can list their loan details and investors can browse looking for loans to fund. The sites charges borrowers a set percentage of their funded loan amount as a servicing fee and collects a small fee from each investor each time a loan payment is made.
The peer to peer lending companies provide an active business center where borrowers and investors can come together and find ways to make lending mutually beneficial. Every company will do some preliminary credit checks on borrowers that apply for loans through their company. Some have very stringent credit requirements for the members that use their websites. Borrowers that do not meet these requirements have their loan application automatically rejected.
The Borrower
The borrower creates a loan listing to prove to investors that he or she is a good candidate for a loan. The loan listing will include the borrower’s financial information, a credit grade as assigned by the peer to peer lending company, the desired loan amount, and any additional details that the borrower would like to add to the listing. The loan obtained can be used for anything that the borrower desires, from opening a business to improving their home to paying for college.
The Investor
The investor has the choice of which loans to fund and can choose based on a number of different criteria. Some investors only choose loans of a certain grade to fund while others review the details of various loans for specific information that indicates a good loan choice for them. The investor can fund as many or as few loans as they wish and can choose a funding amount to provide between $25 and the full amount of the loan.
Benefits Of Peer To Peer Lending
Individuals that have bad credit or an average credit score may be able to benefit significantly from obtaining a peer to peer loan. The requirements for obtaining a peer to peer loan are typically less stringent than the requirements for obtaining a personal loan from a bank, so individuals that have already been turned down by several banks may be able to get a peer to peer loan. Most peer to peer lending companies report payments to the major credit reporting bureaus, so a good record of on time payments will be reflected on your credit report and increase your credit score.