The world of finance is an extremely large and diverse network. But just because there are so many lenders available doesn’t mean that you have to take the traditional route when in search of a loan. There are other options.
Searching for the best lender involves a lot of research and headache because you want to be sure the loan you get is the best option for your personal and financial situation. With a traditional lender, you’ll be held to higher standards with regard to your credit score and reasons for borrowing the money. But with a peer to peer lender, you may notice a little more leniency.
If you’re wondering what a peer to peer loan is and how to secure the best option for your situation, you’ve come to the right place.
In this article, we’re discussing how to find the best peer to peer lending options. Keep reading to learn more.
What Is Peer to Peer Lending?
Peer to peer lending, also known as social lending or crowdlending, offers a way for consumers to obtain loan financing without a middleman, or in other words, the bank. Instead of borrowing from a bank, you’re actually borrowing directly from investors involved with the peer to peer lending institution. These investors put forth their own money in hopes of securing a financial return with the interest gained from each loan.
Benefits of Peer to Peer Lending
Even the best peer to peer lending isn’t always better than what you can get from a bank or credit union. But these loans often have unique features that make them competitive.
Interest rates can vary but typically range anywhere from 5% to 30% depending on your loan amount and credit rating. The loan origination process is relatively simple and funding can be disbursed in as little as a few days.
How Peer to Peer Lending Works
The best peer to peer lending institutions will only perform a ‘soft credit pull’before you’re assigned a loan grade. This grade is based on your credit so that the lender can identify whether or not you’re eligible for a loan.
If the lender decides that your credit is worthy, they will make your loan inquiry available to investors who then determine a loan rate. The loan rate is also based on your credit score. Before funding, you’ll be required to present pertinent information and documentation such as proof of employment and income as well as the reason for borrowing the money.
Finally, once your loan is approved, documents will be sent to you for signing, typically electronically, before your loan funds are disbursed.
Searching for the Best Peer to Peer Lending
Just as with traditional lenders, there are several different options when it comes to peer to peer lending. There are a few things to be aware of when searching for this type of loan so that you can make the best decision for your own situation.
Interest Rates
Of course, interest rates are an important and necessary component of most loans and even the best peer to peer lending institutions charge interest. The interest paid on your loan is how the investor makes their return, after all.
Depending on the type of loan that you take out may also depend on your interest rate but you can rest assured that it will probably be lower than a traditional bank offer. This is because there is a lower cost to operate and do business with a peer to peer lender. Consider that traditional banks charge more interest to pay for overhead costs, like employee payroll and building maintenance.
You should also be prepared to pay an origination fee for your loan that will range anywhere from 1% to 5% of the loan amount. Most banks don’t charge this fee so you’ll have to weigh your options carefully.
Credit
While peer to peer lenders do review your credit, there are more options available to those with blemishes on their credit than there are with traditional lending institutions. You may be charged a higher interest rate for a low credit rating, but you can rest assured that you’ll still get the loan you’re looking for.
Typically, a mid-range 600 score or higher will secure a loan with a peer to peer lender and some lenders will consider even lower scores depending on the loan amount requested.
Purpose of Your Loan
There are various reasons people seek loans and traditional lenders are a lot more strict when it comes to the purpose of your loan.
Consider the best peer to peer lending practices that allow you to take loans out for the following purposes:
- Personal Loans
- Auto Loans
- Business Loans
- Mortgages
- Student Loans
- Bad Debt Loans
- Medical Bills
All you have to do is provide a valid reason for securing financing and the lender will take it from there.
Request Process
The request process for a peer to peer loan is far less rigorous than with a traditional lender. The loan process is handled electronically, online, so you don’t have to waste time driving to the bank.
The loan approval process is often quick and easy with funding available after approval in just a few days. You won’t have any face to face meetings because everything is handled online so as soon as you provide the required documentation, your loan is ready to go.
It’s also important to note that your loan request will be processed anonymously. Investors only see your loan request, not personal information like your social security number or other information.
Final Thoughts
Searching for a peer to peer lender doesn’t have to be overwhelming and stressful. It’s actually much easier than obtaining a traditional loan from a bank or credit union with less documentation to provide.
Peer to peer lending is a great alternative for those that are working on building their credit. It’s also a good option for people who simply want to avoid higher interest rates if they already have good credit. And, if you prefer to avoid traditional lending institutions, this type of loan is a great choice.
If you’re interested in finding out more about the best peer to peer lending available, or if you have questions, submit a request. We can help you understand and solve your financial goals.