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Peer To Peer Lending
Peer to peer lending (P2P) is a specific type of lending where firms match lenders with investors. Instead of making money on interest like with traditional loans, the firm that does the matching makes money off of a transaction fee, which is often a one-time fee depending on the platform.
The money made on interest from the loan instead goes to the investor themselves, making people wonder if there’s any validity to viewing peer to peer lending as an investment.
In this article, we’re going to look at the wide world of P2P lending, explore its credibility and help you navigate this relatively new system so that you can either find a loan, make money, or avoid a scam.
First Things First – Evaluate the Platform
Before going any further, if you’re interested in P2P lending, you likely have a specific site or peer to peer lending app in mind.
You absolutely must evaluate them to make sure that your money and your personal information is secure.
This can be done in a few different ways. Perhaps the best way you can evaluate peer to peer lending sites is to simply run a search for the name of the website and the word “reviews”.
You should not rely on the reviews that they’ve posted on their own website. Instead, look for sites like TrustPilot or the Better Business Bureau to find unbiased reviews of the site.
It’s normal to have a few disgruntled investors or borrowers to post scathing reviews, but if the overall consensus is that it’s a scam or untrustworthy, find a different platform.
Even if there are bad reviews, is the company responding to them? A peer to peer lending platform that’s worth your time will take the time to respond to negative reviews.
Make sure you read every P2P platform review for the site in question.
- Check online reviews
- Look for patterns of untrustworthiness
- Thoroughly research each platform before signing up
Can You Make Money with Peer to Peer Lending?
The basic premise behind peer to peer lending is that you lend another party some money, and then you earn an income based on the interest.
With saving account rates being lackluster for quite some time, people have been looking to see if peer to peer lending investing is a worthwhile way to put your money to work.
The answer is that it depends on the platform and how they’ve structured their program. You’ll need to take a look at their terms of service and payout structure. You also need to know exactly what happens if a borrower defaults on their loan.
Are you out what you lent them? Or is there any sort of guarantee?
For many platforms, you will simply be out the money that you lent them.
Want To Become A Peer To Peer Investor?
If you’re interested in becoming a peer to peer lending investor, then the best thing you can do is research the platform and each individual borrower.
An ideal lending platform will give you detailed information about the borrower. Ideally, you’ll have their credit score along with their income.
Many P2P websites will verify this information as well, so you know you’re not being scammed.
Peer to peer lending returns vary based on the riskiness of the loan. Before you and the borrower enter into an agreement, you’ll see exactly how much you’ll make with the loan in question. That gives you the opportunity to make a wise peer to peer lending investment while minimizing risks.
As with most forms of investment, the riskier the loan, the higher the reward. That’s why peer to peer lending for investors can be quite profitable depending on the lenders temperament.
If you’re looking to make money with peer to peer lending, it’s wise to take on a number of loans with varying interest rates and spread out your investments across multiple different assets. This way you’re more protected if someone defaults on their loan.
Can You Use Peer to Peer Lending with Bad Credit?
Individuals with less than ideal credit are often drawn to P2P platforms as an alternative method for finding loans. This can be rewarding, but it can also be difficult and even risky.
Many of the P2P companies that advertise to people with bad credit are often not reputable. They may give you a loan with incredibly high-interest rates, hidden fees or simply take your private data and deny you any loans.
This is why it’s important to thoroughly research the platform in question before you even sign up. Anyone looking for peer to peer lending for bad credit should spend several weeks investigating the platform in question before giving them any data.
However, that doesn’t mean that all peer to peer lending for bad credit is a scam. If you’re left wondering “is peer to peer lending safe?” then the answer it that it depends on the company.
The general concept of P2P loans is based on sound financial logic, so it just depends on the company itself.
Be warned, however, that if you are looking at peer to peer lending bad credit then you’ll be given loans with high interest rates. Unfortunately, you’re seen as a riskier loan than someone with better credit, so your interest rates go up. This makes lending to you attractive to investors.
There are many types of P2P platforms offering all sorts of funding and loan options for both borrowers and investors. Below is a list of platforms you may consider when doing your research:
Is P2P Lending Right for You?
P2P loans have been around for a decent amount of time now, but in the grand scheme of the financial world, it’s still quite new. This means that there’s an opportunity for both lenders and borrowers to get what they’re looking for out of it.
It bears repeating that you need to thoroughly research the platform that you’re looking to sign up with, whether you’re lending or borrowing. This is how you can avoid a scam and make sure your assets and information will be protected.
Needing some help securing funding? These peer-to-peer platforms may hold the key to your financial needs. Instead of borrowing money from a bank or institution, P2P lending coordinates your loans from a person or group of persons. What’s more, you have plenty of options to choose from, as you’ll see below.
As one of the biggest P2P lending communities around, LendingClub has issued a staggering $50 billion in total loans since its inception in 2007. What’s more, LendingClub is responsible for connecting investors with well over 3 million borrowers.
If you’re looking for a personal loan, applicants can potentially borrow as much as $40,000. And if you only have fair credit, you needn’t worry. LendingClub will work with borrowers who have a minimum of 600 on their credit score.
With prequalification available to borrowers and no penalties for prepayment, LendingClub is one of the premier peer-to-peer platforms. However, there are some downsides you should be aware of.
For one thing, it can take quite a while for you to receive your funds from LendingClub, sometimes taking 4 or more days. What’s more, they have an average origination fee of 4.86 percent. This suggests that there are very few borrowers who actually for LendingClub’s advertised low fees.
Keep in mind, too, that late fees accrued will either cost you $15 or 5 percent of the total sum of your unpaid payment. LendingClub will always charge you the amount that is the greatest.
Founded 2 years before Lending Club, Prosper began business in 2005 and is heralded as the first P2P lending community in the United States. Since its inception, Prosper has helped more than 1 billion borrowers secure their financing from investors.
Like Lending Club, Prosper peer to peer lending will loan up to $40,000 to qualified applicants. Some of the better aspects of this lending marketplace include a lower maximum origination fee compared to a lot of the other P2P lenders, and you have the ability to adjust your monthly payment schedule if necessary.
With that being said, Prosper is also a bit slow in dispersing approved funding, with many applicants having to wait 5 days before they see their financing.
As with Lending Club, Prosper will charge you either $15 or 5 percent of the total sum of your unpaid payment, with the greater amount always charged.
This peer-to-peer platform is a newer addition to the online lending marketplace, having been founded in 2012. It’s interesting to note that Upstart is the brainchild of former employees of Google.
As new as they may be, Upstart has certainly made a name for itself since opening its virtual doors. As of just 2012, it is responsible for the funding of nearly $7 billion.
Upstart makes use of underwriting software that helps them located potential borrowers based on their employment history and education. Credit doesn’t seem to be as important as many other P2P platforms, which is good news for those who have had financial challenges.
Personal loans range from $1,000 to $50,000 depending on your credit score. Perhaps the best part of Upstart is that this company looks at more than just your credit, taking into account your past work history and schooling.
If you have the backing, you can borrow more money than what a lot of the other P2P platforms offer. What’s more, Upstart has lightning-fast funding windows, with many applicants getting their money in just 1 or 2 business days.
With that being said, you should use caution. The maximum APR is a stunning 35.99 percent and the origination fee is 8 percent. And if you need a co-signer, you’re out of luck, as Upstart does not allow them.
As with the previous entries, Upstart will charge you either $15 or 5 percent of the total sum of your unpaid payment, with the greater amount always charged.
Making loans possible for borrowers since 2010, Peerform is the result of Wall Street suits who wanted to get in on the peer-to-peer action. They aren’t like all of the others, though, as Peerform has some pretty solid benefits.
Their interest rates are surprisingly competitive, especially for borrowers who have great credit scores. What’s more, there are no prepayment penalties to worry about, either.
They do, however, have pretty low maximum loans, comparatively, topping out at just $25,000. And you live in Connecticut, North Dakota, Vermont, or West Virginia, Peerform won’t allow loans in those states.
With late fees, Peerform will charge you either $15 or 5 percent of the total sum of your unpaid payment, with the greater amount always charged.
Another peer-to-peer lending community founded in 2010, FundingCircle has a modest but growing 100,000 investors since it started. With a focus on small businesses, FundingCircle has, to date, helped more than 81,000 business owners secure financing.
This has resulted in many small businesses succeeding in realizing their dreams. Even if your business has a lower FICO score, FundingCircle may be able to help you get the funding your company needs, as long as it is at least 660 (and your business is at least 3 years old).
FundingCircle can typically get you your funding in 3 days if approved. However, there is a hard credit inquiry, so keep that in mind.
Founded at the very end of 2013, StreetShares works with borrowers with a credit score of at least 600. There are no prepayment penalties in place, but there is a maximum APR of 39.99 percent.
You can potentially borrow as much as $200,000. However, you’ll have to make repayments every week, which could prove challenging for many people. The total amount that you can borrow is based on 20 percent of your total annual income.
Started in 2012, Kiva is a great resource for small business startups looking for funding. Kiva is well-regarded for its lack of interest rates, fees, and credit score requirements.
The downside? The application process is lengthy and it can take up to 3 months to get your money. Loans are limited, with maximum lending at just $10,000.
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