What is Peer to Peer Lending?
Peer to Peer Lending is a form of lending whereby a person or company can get funding without involving third parties such as banks. It is an exchange between two companies/people rather than a bank/building society.
What is the process as a borrower?
The process firstly requires you to sign up for a P2P Site, with the platform in question carrying out a series of credit checks to ensure you can be trusted to pay the money back. Once you are considered eligible, you will be given loan offers based on the amount the ‘Peer’ you are dealing with feels is a safe amount of money to lend you.
Some companies may be willing to take bigger risks than others, meaning that if your credit score isn’t up to scratch with trusted standards, the lender can raise the interest rate for the loan you are offered – this can be up to 30%.
On the other hand, if your credit score is considered good, your interest rates can be lowered significantly; (as low as 3%) meaning that the loan would be a better deal than what a bank/building society could offer you.
Why is it worth my while as a borrower?
- If your credit score is good, you could be in for a better deal than if you went to a bank/building society
- A quick, easy and free sign up process
- Lenders willing to take risks can offer those with poor credit a better loan amount
- The loan has an option to be ‘Unsecure’ meaning that you will not have to provide any property in case you cannot pay back the loan in time
- Any initial quotes will not affect your credit rating
- Can be an easier way for companies with poor credit to borrow (If the lender is willing to take a ‘risk’).
What is the process as a lender?
Peer to Peer Lending is a good way to improve your cashflow. If you have excess funds, you can sign up to a Peer to Peer Lending site in order to find businesses/people who are looking for a loan.
Why is it worth my while as a lender?
- Improves your company’s cashflow
- Some sites will cover any losses that could occur should a client not be able to pay the money back
- The passive income you can make as well as the experience a P2P Lending site has in dealing with the subject means that the process has an appealing risk/reward ratio
- P2P Lending sites are very transparent and offer excellent advice as to whether the investment is a good idea for your company or not
- You can pull out your funds at any time, providing that another investor is willing to take over the loan
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