What is a peer to peer loan?
Sometimes referred to as social lending, the idea of peer to peer loans is that people who are looking to borrow money are matched with people who are willing to lend it. Peer to peer loans are available online, where the website will match you up with people who are willing to lend money to you.
This form of lending takes place between individuals, without involvement from a bank or building society. Instead, the companies are intermediaries between the borrower and the lender. Unlike traditional loans, peer to peer loans can offer lower interest rates – although this is dependent on factors like your credit rating. The better your credit rating, the more likely you are to be able to benefit from a great deal.
Should I take out a peer to peer loan?
If you are looking to borrow money, you could find that peer to peer loans are a cheaper alternative to banks or building societies – though, again, this will be dependent on your credit rating. With no minimum loan amount on some websites, you might be able to take out a smaller, short-term loan.
While there are some good deals available, interest rates with a peer to peer loan could be higher than what you’d expect to see from most banks or building societies, especially if you have a less than perfect credit score. You may also find yourself paying fees to the platform that arranges the loan between you and the lender – so this is something to take into account.
Unlike other loans, the same protections might not apply with a peer to peer loan. So from the platform you use to the specific lender, be sure to find out everything that’s associated with borrowing in this way before you go ahead and apply.
Applying for a peer to peer loan
If you’ve explored all other options (you can find a brief overview of other loan options on our homepage) and decided that a peer to peer loan is the best form of borrowing for you, then you’ll need to explore the various lending sites and register online. After this, you can choose the amount you’d like to borrow and over what period of time. This will show you whether you’re eligible for a peer to peer loan and the rate of interest you’ll have to pay. Peer to peer lenders tend to split the loan amount between several people, and because of this, the interest rates they offer on the amount they’re willing to lend might differ.
When applying for a loan, as well as passing the peer to peer company’s criteria, a credit reference agency will be used to assess your credit rating.
Paying off your peer to peer loan
Once your payment dates are agreed, if you default on your loan, you might find it’s passed to a debt collection company who will deal with it on behalf of the lender(s). This is a dangerous position to find yourself in as, in extreme cases, you could find yourself in court.
Furthermore, not only will falling behind with payments or defaulting on your loan cause you financial difficulties at the time of holding the loan, but it will affect your credit rating, too.
For additional financial tips, check out the Jolly Good Loans blog – where you’ll find money saving tips and more. If you find yourself under financial pressure, remember that there is help available. You can visit the Citizens Advice website here or call the free national debt helpline on 0808 808 4000.