Borrowing is never an easy decision. Not only have you got to decide whether you can afford the repayments out of your future budget, but you also have to decide what kind of credit is appropriate for your circumstances. In some cases, it’s very clear cut; for example, if you want to buy a house or a flat, then you likely need a mortgage. If you need to renovate your kitchen, perhaps you would opt for a personal loan from the bank. But when you don’t need quite so much cash – maybe you’re facing a short term emergency or just need to spread the cost of a large, planned purchase over a few months – it can be much trickier knowing where to borrow. The decision becomes even harder if you have a poor credit history.
Peer to peer lending (P2P lending) is borrowing arranged between individuals rather than between an individual and a lending business. Usually, there is a third party platform which arranges the transactions by matching up potential borrowers with people who want to make a bit of money by lending their spare cash. It’s not risk free for lenders, and isn’t always a cheap option for borrowers - especially if you don’t have a brilliant credit history, but it can be a good alternative to mainstream credit and same day loans.
Most peer to peer lenders are part of an online platform which acts as a mediator between both parties. Some platforms allow for applications to be processed automatically, while others may be manually reviewed by the lenders. Your loan decision time will depend on the application process, but you can usually submit an application any time of the day as the service is online. Businesses can also get peer to peer loans, and the process is quite similar, but you may be required to answer questions about your business and demonstrate an established trading history.
In some cases, lenders can choose who they wish to lend to, and some individuals may have a bigger risk appetite than others. This can mean you have a wider chance of acceptance, but it may take a while to find a lender willing to meet your needs. If you have a low credit score or a poor credit history, you might find P2P lenders charge a higher interest rate.
Anyone can be a P2P lender, but it’s important to note that it’s not a safeguarded stream of income. Lending carries risk because there’s no guarantee that the borrowers will be able to repay the money. While most people apply for credit with the full intention of repaying, things can go wrong which can make it difficult to meet financial commitments. If you’re thinking of becoming a peer to peer lender, you should never offer to lend more than you can afford to lose, especially because some loans are offered over 3 to 5 years. While, in most cases, you have control over who you lend to and for how long, you don’t have control over life’s ups and downs.
Peer to peer lending can be a great way to manage your cashflow, but some people can find the concept odd. Even though platforms offering P2P loans in the UK are regulated by the Financial Conduct Authority, sometimes people prefer the anonymity of borrowing from a company rather than a person.
If you need money quickly, payday loans can be a reasonable alternative to P2P lending, especially if you have a poor credit history. You could also consider cash credit lines or credit cards for people trying to rebuild their credit history, depending on why you need to borrow and how much cash you need. Plus, you can compare loan lenders with these types of creditors by using an online website. It’s slightly harder to compare P2P lenders as the results might be ranked by acceptance rates, rather than interest rates, meaning you might not know if the loan you are offered is the cheapest option.
Regardless of how you choose to borrow, you need to make sure the repayments are affordable because missing your repayments could reflect negatively on your credit file. It’s also important to consider the increasing living costs and whether your budget will have to accommodate raised expenses over the next few months. While it’s not always possible to avoid a cash emergency, make sure your borrowing decisions are responsible and won’t land you in any further financial difficulty.
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