Is peer lending the right thing for you? Many consumers are choosing peer lending as a viable solution to handle their borrowing needs. This is as a direct relation to the decisions being made by the credit card and banking procedures. Many consumers are being faced with the ongoing challenges of tough lending practices.
Some consumers are not able to get a personal loan or when they can get a personal loan, it is only those with high interest rates. There are many peer lending services that offer lower rates (as low as 7%) and so that is why consumers are switching to save money on lower interest rates compared to what the credit card and banks would charge. For that reason, peer lending companies have the ability to compete with financial institutions and credit card companies. With no overhead costs or operating costs, peer lending companies can offer lower interest rates.
For consumers with better credit scores, peer lending services offer the ability to borrow larger amounts at a fairly low interest rate. However, despite this, not all consumers will get one of these loans. There are still specific requirements that have to be met by borrows prior to receiving one of these loans. There are a wide range of different requirements as it relates to the different companies. It could be the borrower’s credit score. It could be a threshold of debt to income ratio. It could be the number of delinquencies, credit inquiries and how credit has been utilized by the borrower on other credit cards. Most lenders still prefer to have a screening process to limit the borrowing risks.
You may be wondering how the peer lending process works. It is similar to the business model where the lender and the borrower directly work out an agreement without having a third party lender involved. Peer lending uses an online platform where the borrower lists their loan requests, which includes the amount, the terms of the loan and the interest rate. A number of lenders bid for the loan listing that fit their criteria. The lender also looks at the borrower’s profile, which should include the borrower’s monthly expenses, income, creditworthiness, credit scores and any other necessary information. These parameters are used to calculate the borrower’s debt to income ratio in order to determine qualification.
The Borrower and Investor Relationship
For borrowers, the goal is to get a higher loan amount than traditional banks offer. For the lender, there are risks associated with lending a higher amount, but they are willing to take that chance. In fact, most of these investors have calculated their risks and found ways to minimize those risks. On the other hand, some peer lending companies also have investor requirements of a specific net worth and yearly gross income. With these requirements, investors then prove that they can tolerate the financial risks that may be involved with the process.
The peer lending trend is one that is going nowhere as borrowers are tired of being turned down by financial institutions and credit card companies. Before you seek peer lending service, it is best to be aware of what is involved and understand your responsibility.