Peer to peer lending, also commonly referred to simply as “P2P” lending, has increased in popularity since being introduced in just over a decade ago. This type of lending is also often known as “social lending” because of the way it works. Peer to peer lending is the kind of lending that occurs between two individuals instead of in the traditional manner that involves a bank or other financial institution. There are a number of peer to peer lending companies around the world that offer loans to individuals who prefer an alternative to loans offered by banks. Two of the best-known lending companies, Lending Club and Prosper, offer funding for just about any purpose. Peer to peer lending offers benefits for both the borrower and the lender.
What are the Benefits of Peer to Peer Lending for Borrowers?
- Easy Application Process: Applying for a peer to peer loan is very easy. It is done online and takes only a few minutes. All that’s needed is for the borrower to include personal information into the online application. You can be approved for a loan mere minutes after submission of the application.
- Interest Rates: Peer to peer lending offers extremely reasonable interest rates that are similar to those of loans acquired from banks. On average, a quote for a P2P loan is an APR of around seven percent for the most qualified candidates. When a borrower is approved for the loan, there are a few different payback timelines offered, ranging from one, three or five years. The interest rate is adjusted based on which payback term the borrower chooses.
- Speed of Funding: One of the biggest benefits of peer to peer lending for the borrower is the speed at which funding comes. Depending on the size of the loan, funding usually takes only one to three weeks. Smaller loans that amount to less than $5,000 can be funded in less than a week.
- Higher Funding Rates: Funding amounts for peer to peer loans have increased over time, meaning that the borrower can acquire an even greater amount for their loan. Generally, the amount of a P2P loan can range from $1,000 to as high as $35,000.
What are the Benefits of Peer to Peer Lending for Lenders?
Lenders also get to reap the rewards of the peer to peer lending process. Here are some of the notable benefits of P2P lending for lenders:
- Spreading Risk: Lenders are not large financial institutions and are instead, regular people. Many peer to peer loans are filled in significantly smaller increments. Investors are drawn to this type of loan because of its lower interest rates.
- High Returns: Returns on P2P loans can average at around 10 percent depending on the type of loan and its term. This amount is very attractive in the market.
- Lenders Choose: Lenders can benefit by choosing who they want to get their loan after the borrower passes identity verification. The lender can also choose to invest in a loan that piques their interest. For example, if you are a lender and you don’t like that a borrower wants a loan to consolidate their credit card debt, you can pass on that person. However, if you see a lender who wants a loan to make minor home improvements, you can choose to fund for them.
These are some of the greatest benefits of peer to peer lending. Both the borrower and the lender can enjoy these winning situations.