The advantages of Peer-to-peer personal loans

There are many types of loans available for borrowers, but knowing which to select can be difficult. Peer to peer loans are a relatively new breed of lending and one which offers unique advantages. However, in order to understand these advantages it is essential to understand what a peer to peer loan actually is. First, it is important to realise that as a borrower you do not borrow money from the company (Zopa or RateSetter for example) but rather from other members of the public. The company is an intermediary which matches up lenders and borrowers and distributes lender's money amongst borrowers. A lender's money will be split into multiple packages, each consisting of a small amount, usually around £20. These packages are then included in loans given to borrowers, along with packages from other lenders. This means that no one lender is saddled with all of the risk of any one loan. Meanwhile, borrowers apply for a loan and, based on their credit history, are given a loan at an appropriate level of interest, with a borrower deemed to be a higher risk paying more interest. So, for example, if you borrow £1000 then you will actually be borrowing from around 50 people, borrowing £20 from each person. Similarly a lender will actually be lending £20 to multiple people rather than lending £1000 to one person. This is, therefore, a very low risk prospect for a lender, with borrowers being subjected to fairly rigorous credit checks and even after these checks there is a very small exposure for each lender in the event that the borrower is unable to make the repayments. Although this process may appear complicated, much of the complexity is handled by the loan company, with lenders and borrowers only seeing one lump sum leave or enter their bank account. All of the dividing up and distribution of finances occur behind the scenes and need not concern those who use this service. Although these loans are very advantageous for lenders, the benefits are by no means one sided. Peer to peer loans are a quick, often within 48 hours, method of getting money easily with clear repayment information. Even better, these repayments are at a very reasonable level of interest, often undercutting the rates offered by banks. In a time when banks are offering measly interest rates to savers and high interest rates to borrowers, peer to peer lending offers a way to cut out the banks from the entire affair. A major advantage of this set up is that there are often no fees for paying off your loan early. This means you can become debt free without being lumbered with lots of red tape and hurdles to jump over. These loans do not have to be for huge renovation projects or a new car. They can be for as little as £1000 and, depending on which company you go to, the loans can be repaid over anything from 6 months to 5 years. This set up gives both borrowers and lenders a better rate of interest than they would receive from a bank, a manageable length of time to repay and as reliable a rate of return on investment as can be expected from any loan agreement. Peer to peer loans are an increasingly common way of lending and borrowing money and frankly it is easy to see why. To apply for a peer to peer loan we recommend RateSetter.