If you don’t want to borrow money from a bank, or a money lending institution, you can borrow from individuals in what is popularly known as peer to peer lending. This concept is very popular, and there are many benefits to the lender as well as the borrower. However, just like the banks, a p2p lender encounters many risks which could lead to losses or loss of money. This discussion is about the benefits of peer to peer lending to both the borrower and the lender. Keep reading.
What is a peer to peer lending?
P2P lending is a method of advancing money that seeks to break away from the old bank lending system by allowing individuals to lend money to other individuals. There are many advantages for both the lender and the borrower, to opt for P2P:
The principle of the bank less loan is simple as you can borrow a personal loan from private individuals, also known as P2P. In this case, you can borrow from many lenders and be able to finance a project.
It is an alternative financing system, which allows you to bypass certain often high costs, charged by banks and other credit institutions. If you don’t trust banks, peer-to-peer lending could be a go-to solution for you!
Easy to use platforms
Note that many loans between individuals are carried out via an internet platform specializing in this area. These sites are intermediaries who are responsible for connecting investors: who are ready to avail of the money and people willing to borrow.
The role of the peer-to-peer lending platform is to protect both parties by offering a contract and appraising a borrower’s creditworthiness.
Income to Investors and cheap loans to the borrower
Thanks to this system, the investor benefits by earning a return on their investment. Finally, the lender makes money available in the form of loans and earns interest on it.
On the other hand, as a borrower, you’ll benefit from cheap loans than what you could have received from the banks.
The process is simple and has fewer bottlenecks. Banks require a lot in terms of administration and paperwork. Since the loans are for those people who are excluded by the banking system, you’ll find the process much simpler and easy.
It is also possible to lend or borrow money from someone you trust. In this case, a specialized platform is intended to promote these procedures by further simplifying them.
Are there any risks?
It’s worth noting that loan between individual is just like any other loan and certainly there are risks involved.
If you lend money to someone who is not creditworthy, there is a risk of default, and you must consider this possibility. Consider the interest and the security you’ll demand from the borrower before you lend. There is a need for a formal contract in case things don’t go as you’d expect.
Even when you lend money to a loved one, including if it is a zero-interest loan, it is still important to keep a written contract, to avoid future problems.
Tips when borrower under peer to peer platforms
In order to make an informed decision, there are a number of things to consider when applying for a loan from an individual or lending money to an individual:
- It’s important to consider the legal implications of the loan. Have a background check of the company that is loaning you money and look for reviews.
- Ensure there’s a written contract, and the terms are clear. These include the interest charged, repayment period, and penalties in case of default. What security are you giving? Is there any valuation report? It’s important to consider these factors before you take up a loan.
- Notably, these platforms charge fees and interest rates, which although lower than banks, do exist. It is important to take this into account whether you are a borrower or a lender.
If the lender does not use a platform to manage P2P, he may be exposed to the risk of default by the borrower, because he has no guarantees of the latter’s solvency. Choose a platform that is under the supervision of regulatory bodies so that you can have a guarantee of reliability.