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Everyone has moments when they need a lump sum right away. When you don’t have time to make a savings plan and wait until you have the funds you need. Borrowing money can be a lengthy process of paperwork, delays and credit checks, or it can be quick and easy like a credit card or cash advance, but it also comes with a high interest rate.
And that’s if you can obtain Traditional loans or lines of credit.In such situations, many turn to personal loans from friends and family, a method that can also damage relationships. No, but this is a very bad idea. But there is another option Might be so Works for you: peer-to-peer (P2P) lending.
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What is peer-to-peer lending?
Peer-to-peer lending involves borrowing money from one or more individual investors rather than a bank or other organization. This is a kind of crowdfunded personal loan. For example, instead of borrowing his $5,000 from a bank, Payday his loan, or uncle, he would borrow it from a stranger. Typically, this involves platforms like his Prosper and Funding Circle, where investors choose the loans they want to fund.
Loans are typically funded by multiple investors at once, but the borrower makes one monthly payment, split among the funders. They earn money by charging interest to meet their short-term financial needs without having to deal with banks or other financial institutions.
How P2P loans work
Getting a P2P loan is a fairly straightforward process, but specific steps vary by platform.
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Identify a suitable platform. Different platforms offer different rates and different minimum and maximum amounts you can borrow (usually these are around $40,000 to $50,000).
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Complete the preliminary application form. This is like any other loan application, asking why you need the money and asking you to provide personal information such as payslips and tax records to prove your income.
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The platform runs credit scores and screens applications. Based on this information, you will be assigned a valuation that investors will use to decide if they want to lend you money and on what terms.
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Confirm the offer. One or more investors may fund all or part of the loan. You will have the opportunity to review the terms offered and decide whether to proceed with them. Once the loan is final approved, the funds will be received and the repayment schedule will begin.
Note that most of these loans charge an origination fee, just like traditional loans. These fees are typically around 5% (again, it varies) and are usually derived from the loan amount. So if you borrow $5,000, the platform will only credit $4,750 to your account and take the rest as commission. This means you may need to adjust your borrowing amount to make sure you get the amount you actually need.
Why P2P?
There are many reasons why P2P loans are an attractive option.
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comfortable. P2P loans are usually completely online, so there is no need to visit a bank or credit union. No more staring at your loan officer frowning at your computer screen. Complete your application online, upload your documents, and explore your options all online.
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Easier approval. If you’ve been denied a traditional loan due to a poor credit score and history, you may be better off using a P2P platform. Investors can independently set the level of risk they are willing to take on their money. If you have enough investors on the platform who don’t care too much about your financial mess, you can get that loan.
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better conditions. There are no guarantees, but you can often get better loan terms through P2P platforms. Because investors pool small amounts of money individually, interest rates can be lower than the standard interest rates offered by banks, allowing them to withstand lower rates of return.
It’s also important to note that P2P loans have some potential drawbacks.
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higher fees. P2P loans are not automatically better than bank loans or other traditional loans. They can be structured in different ways and you may end up paying more fees for your loan than your bank, so be very careful.
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less service. Banks and credit unions usually have an entire department dedicated to processing loans, and when you run into trouble repaying a loan, you’ll get a surprising amount of help because banks prefer arrangements over collections and defaults. P2P lenders are more decentralized, which can mean less support.
scam
Like everything else on the internet, the P2P ecosystem is rife with scammers who take advantage of desperate people. The risk for the lender is to wake up one day to find that the platform has been shut down and the money invested has been abandoned. The risk for the borrower is more about phishing, getting personal and financial information to set up a fraudulent account, signing up for her P2P platform in hopes of getting a small loan, instead Your ID is stolen.
There are some basic ways to avoid this fate.
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due diligence. Start by researching various P2P lending platforms and avoid the ones with bad reviews. number No review at all. Avoid his P2P platform that is less than 3 years old. Most problematic P2P lenders fail and close within a year or two.
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license. P2P lending platforms are regulated by governments and must hold applicable licenses in the state or country in which they operate. Make sure the platform you are considering is properly licensed and beware of P2P lenders operating in countries that don’t have much of a financial regulatory record.
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I moved my account. Check where the platform does its own banking. For example, if a platform has offices in the US and a bank via Venezuela, that’s a red flag.
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clear communication. Scam platforms often do not provide written loan agreements. You should be able to check the terms of the loan you are agreeing to before you sign it.
Borrowing money from peer-to-peer lenders can be a good option if you have trouble borrowing money in more traditional ways. That’s it. If you can get a better rate from a more reliable lender, the paperwork and effort of a traditional loan may be worth it.
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