Peer-to-peer (P2P) lending is an alternative form of taking out loans. It’s usually enabled by fintech platforms through apps you can easily download from the Internet. With these, you can borrow money from multiple people directly from reliable money lenders. It’s a bit like cutting out the middleman from the lending process.
Here are four things you should know about it.
You borrow money directly from other people
From the name itself – peer-to-peer lending – the source of funds for your loan is the members of the P2P lending platform (peers). A bank or other financial institution does not control the money. Instead, the members can pick and choose which loans they will lend money to. Effectively, financial institutions and other “middlemen” are cut out of the equation.
The challenge here is this: there is a chance that the loan you apply for may not be fully funded. If not enough people pool money into your loan, you cannot get the full amount. Even then, P2P lending is an easier and faster way of taking out a loan than going to a bank.
You can invest your money as a lender
Not only can you borrow money from P2P lending platforms, but you can also lend your own money to other borrowers. If you have some cash to spare, you can register as a P2P investor and lend them to others.
You have the freedom to choose whom you will lend to. This way, you can check for yourself if the borrower has the capacity to pay you back. If you are not confident with the financial status of certain borrowers, you may opt not to lend to them.
Also, you can choose how much money you will lend. You can even lend partial loan amounts to multiple borrowers. You have full control over whom your money goes to.
Getting a P2P loan is easier than getting a loan from a bank
Reliable money lenders always check for credit history, monthly income, and other indicators of financial status. However, documentary requirements are less stringent than those of banks.
Also, P2P lenders are more considerate to lenders who have less than ideal credit scores. As long as a borrower can prove their capacity to repay the loan, they can qualify. Repayment terms may also be negotiated to fit any borrower’s financial situation.
Interest rates can be lower than bank loans
Personal loans offered by banks usually charge anywhere between 1% and 4% interest per month. P2P loans, on the other hand, can have lower monthly interest rates depending on the financial situation of the borrower. Borrowers can even negotiate interest rates when they apply for a P2P loan. This way, repayment will be less of a financial burden to the borrower.
If you need to borrow money but are not confident of your credit score or financial status, consider getting a P2P loan. There are many reliable money lenders in Singapore who can help you in times when you need a quick infusion of cash.