Have you ever approached your bank for a loan only for the bank to refuse to lend to you? Or worst still, charges you a higher interest rate? What are your options? Peer to peer lending is a popular trend where you can borrow from individuals.
Previously people could borrow money from banks, friends, and relatives. However, things have changed and now there are many platforms on the internet where you can get money easily and anywhere.
While lending between individuals represents only a fraction of the market, it is gaining popularity. It is especially so if you don’t meet the stringent requirements put forward by banks or you have an emergency loan need.
What is a peer to peer lending?
Peer to peer lending consists of a loan of money between two individuals, without any recourse to the banking system. This form of borrowing is, of course, old as the world, but had experienced regression as banks became dominant in financial exchanges between individuals.
Because it re-establishes a direct relationship between the borrower and the lender, the PAPor P2P has the effect of eliminating this banking intermediation. It obviously owes its recent boom to the spread of the Internet and the emergence of new platforms specializing in peer-to-peer lending. For instance, you can now access credit through special apps from your phone.
Does Peer to Peer lending ask for advance fees?
The loan between individuals is to be distinguished from donation operations offered by other crowdfunding platforms. As you can see, the fundamental difference is that as the beneficiary of the loan, you must repay the amount borrowed plus an interest rate.
The individual lender is thus remunerated. While some costs are therefore inevitable, it is essential to take an interest in the costs that are sometimes required in advance.
No serious and honest lender will ask to advance fees before obtaining the loan: this is a golden rule! Such a request can lead to a scam, and this should raise a red flag.
Therefore you should not pay any money before obtaining the loan. In addition, you’ll not be required to pay administration fees as is the case with bank loans.
How to avoid being scammed
- Finding a serious and honest lender may not be easy, and therefore it’s important to follow some simple rules:
- Request a loan between individuals on a specialized platform to avoid being scammed
- Prefer platforms that are well established and whose reliability has been demonstrated. In this case, you can use referrals from friends and relatives.
- Check the legal notices on the website of the lending individual or institution.
- Outside the platforms, the process must be even better prepared. You can learn more in forums, and social media, or ideally get a recommendation from family and friends.
What are the advantages of the loan between individuals?
The first advantage and not the least is that the terms of a personal loan between individuals are freely defined between the borrower and the lender. It means that you get to agree on the rate of payment or interest. You also agree on the repayment period and the penalties in case of default.
From the debtor’s point of view, the loan between individuals is a valuable recourse when the borrower’s profile has been deemed too risky by banks and credit organizations, or when the loans offered to him are too expensive.
Among the advantages of a personal loan between individuals, is the freedom offered to the contracting parties to agree on the terms of repayment of the outstanding amount.
Peer to peer lending is common in low-income households, and thus, it may interest a young entrepreneur who does not yet have solid guarantees or security. The use of loans between individuals on the Internet can then provide the necessary boost to launching your business without anyone knowing your source of funds.
On the other hand, the lender is generally attracted by high-interest rates and may attach your property as security for the loan.
Peer to peer lending has plenty of benefits to both the lender and the borrower. However, before you enter into such a contract, it’s important to read and understand the terms of payment to avoid paying high interest or losing your property in case of default.