Numerous instant loans and mobile loans, flexible loans, bank loans or, for example, pledging of valuables are the most common ways to fill a temporary shortage of cash or raise cash for a coveted purchase or vacation. However, traditional forms of loan can be costly and unwieldy. The annual interest rate can reach up to thousands of per cent in the case of high interest rates. Your credit history also needs to be in order.
Today, people are selling their services, time, and know-how through different applications to other individuals. The same principle is utilized by the new loan product, called the peer-to-peer loan, which has appeared on the loan market during the current decade. In simplified terms, it refers to a private loan to another individual. Of course, it may sometimes be a good idea to ask your little friends, relatives, or acquaintances for a little leverage. However, this is not always advised to be done and large amounts of loans are also unnecessary – thousands of dollars are unused in the account. In addition, unpaid debts can, at worst, lead to a breach.
Peer-to-peer borrowing is more convenient than having a buddy because there are thousands of loan providers and if your credit is just fine or there are other collateral, you can get a loan right away. Best of all, if you have a lot of excess cash or wealth and don’t want to invest in long-term assets such as stocks. The services allow you to lend money to other individuals at your own discretion and the expectation of return is known in advance. The services also handle the collection of fees and the possible collection process.
How does peer-to-peer lending work in practice?
Applying for a peer loan is almost the same as applying for a regular overdraft or consumer credit. Bank codes are used to log in to the loan service, where you enter the necessary personal information, the desired loan amount, the due date and the possible reason for applying for the loan. Individuals compete with one another for interest rates and other terms on their loans, which can sometimes lead to lower prices than normal consumer loans. The service provider always pays its own interest on the loan interest.
People are becoming more and more interested in opportunities outside traditional investment targets, such as cryptocurrencies and investing in small businesses. Peer-to-peer loan services now enable any retail investor or ordinary employee to lend money conveniently and at reasonable risk. The cashier does not need to be indefinite either, with a few thousand dollars to get started.
The whole amount is not usually slow to a single person, but is diversified – thus minimizing financial risk. If one borrower defaults on his debt, the yield on the other loans may still leave the account on the plus side.
Traditionally, companies have applied for a loan directly from the bank or individually from lenders. Peer-to-peer lending is now possible for companies up to USD 500,000. Applying for a loan is based on the same principles as applying for a corporate loan from a bank or credit institution. The companies themselves also have the opportunity to lend a peer loan to help other companies. Practical matters, collection of interest and possible recovery are all done by the service provider.
General information on peer-to-peer lending
- Depending on the service, the maximum loan amount is usually USD 10,000 for individuals and USD 500,000 for companies.
- The loan is available or can be offered to persons over 21 years of age.
- Payment times generally vary between 3-60 months.
- Guarantees and collateral may not be required.
- Exceptionally, it is possible to get a loan without credit history, but this is rare.