Peer-to-peer lending is a platform where the right lender matches the right borrower. This platform usually involves a lender offering a loan amount to the borrower with the interest rate.
Most of the time, the borrowers are small or medium size Entrepreneurs. It is a direct form of lending to the borrowers or the businesses. P2P lending is both secured and unsecured. Most of the P2P lending is unsecured only.
Many entities and individuals do not have a security for the loan and hence opt for unsecured P2Plending.
Opt for a risk-free borrowing
Many businesses and individuals go for P2P lending and go for short-term loans in Ireland, these are the most common forms of available loans. There is lesser risk involved as a borrower and competitive interest rates.
- The convenient and fast application involved.
Since P2P platforms are entirely online, they have a quick loan process. Also, it becomes handy to get the funds from this platform.
This platform has a ready list of investors ready to provide loans to the appropriate borrowers. This means you save your huge time in meeting the right lender and the right forward.
The entire process is a few hours, and the borrower is offered the required money. Hence, it works in favor of the borrowers and the lenders.
- Lower rates involved
Usually, the borrowers have access to the lower interest rates on P2P platforms. These platforms are like traditional loans or banking institutions.
Since no intermediary is involved, the lender directly interacts with the borrower. With this direct interaction, there is a lower interest rate for the borrower.
These interests are for both the parties, the borrower and the lender. Hence, the borrower enjoys a lower interest rate than alternative borrowing forms.
- No severe effect on the credit rating
Borrowing and lending have become very easy through P2P platforms. Hence, the credit score is not impacted at all.
Everybody will get a personalized post without getting an impact on their credit history. This becomes a fair and good idea to go for the loan.
- Better flexibility than traditional loans
Since P2P lending offers both secured and unsecured loans, there is no need to go for secured loans forcefully.
The borrower has a total choice in selecting the type of loan. This makes the process quick and uncomplicated. Also, the borrower can easily access the loan funds once approved. These platforms involve flexibility in the types of loans that they offer.
For example, if, as a borrower, you are making your repayments with no extra costs, you can change your repayment schedule.
So, if you are paying your loan on a specific day, you can match that debt to your payday. There is the flexibility involved in the loan process.
- Includes huge choice
P2P platforms are good exposure for both borrowers and lenders. Lenders can choose their borrowers depending on their credit history.
There is no pressure to offer loans to everybody. The lender has the sole right to select the borrower considering various factors.
- Risk diversification
On the P2P platform, the capital is being spread across multiple loans. This allows diversification.
There is a lesser risk involved in most of the transactions. With lesser risk, many borrowers are attracted to this lending.
Disadvantages of P2P lending
- Includes compulsion of passing credit and other checks
With P2P platform lending, there is no need for traditional lending and the underwriting process. Hence, this process is eliminated.
But that does not mean that a credit check is also not required. The lending platform must pass a credit check to check the borrowers’ creditworthiness. This aims to protect all the lenders and investors offering money to the borrowers.
If a borrower defaults and has lower credit scores, they are not being offered a good amount of loans.
- Payment is involved
If the borrower is applying for a loan in the traditional arena, they must pay a loan arrangement fee.
On the contrary, the P2P platform involves no arrangement fee and makes money by matching the right investor and the lender. If the borrower is acquiring too much money, they must pay too much money for their matching.
This can be expensive depending upon the borrower’s creditworthiness and the loan term Involved.
Legislation is one of the biggest factors and is to be lending. This type of lending is not allowed in all jurisdictions. Some deductions may ban P2P lending. Hence, it may not be there for all the borrowers and lenders.
- Risk of credit
The P2P lending platforms are usually at a high risk of credit. Most of the time, the borrowers with low credit ratings approach these platforms to obtain loans from different lenders.
If they are not allowed traditional loans from the banks, they turn up to the speed to be a lending platform for their financial requirements. This involves a high risk of credit.
- No tax-free interest
A P2Plending platform has an interest rate and is taxable. Also, the annual tax return must be paid by the borrower.
Also, if any interest is earned on the annual tax return, there must be a declaration for the same. The borrower cannot have it without providing a required declaration.
P2P lending is an advantageous kind of lending platform. Many borrowers and lenders have advantages over other traditional loans and lending platforms.
If the borrower is unable to opt for aloan from any platform, they turn to be lending. Hence, it is an appropriate kind of lending platform that every borrower looks for.
Also, there are lesser risks involved in such type of lending. In the case of P2P lending, many borrowers usually decide on this decision.