If you need a loan, you can go to a bank, non-banking company or turn to loved ones. However, you can also try your luck with a P2P loan, which is deposited by specific people – investors who use their P2P platform to value their savings. Is everything about P2P loans as idyllic as it looks in commercials, or do they have the pitfalls to know about?
In order for such a loan to be given a specific framework and rules, P2P platforms have been created that connect people who lack money with those who dwell. Both groups can help each other – successful applicants get a loan and investors evaluate the deposited funds through interest. The revenue that P2P platforms offer investors is quite interesting and surpasses a number of traditional ways of investing, albeit at some risk.
How P2P loans work?
The principle of applying for a P2P loan, refinancing or consolidation is quite simple and the process is generally virtual. In addition to personal information, the loan applicant fills in the form what he / she would ideally need, how long he / she wants to repay it, and how high the interest would be. His demand, which in some cases can accompany a personal story in which he describes what he plans to use the money, posted on the P2P platform site and then watches how investors put on his loan.
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To get the money, investors must first deposit on your loan. Usually this is done in a similar way as an internet auction, where investors themselves decide to whom they lend their money. The requested amount can then be covered by one investor, or it is composed of more people, depending on the rules of a particular P2P service. Nor is it uniform in the form of “negotiating” the amount of interest. Some platforms allow it to be agreed between the potential debtor and the creditor, while others calculate it on the basis of the information provided by the applicant.
Everything is treated in the contract
To avoid lending between people on unclear conditions and without rules, the P2P platform must cover the whole transaction legally. Therefore, he / she will write a contract between the borrower and the lender and ensure that the money arrives where they are. It also ensures that the debtor regularly repays his obligation and, if in default, tries to resolve the situation. This is one of the reasons why P2P platforms check applicants’ creditworthiness in a similar way as banks and the notion that loans in this area are “on a good word” basis are quite distorted.
The loan approval shall be preceded by a thorough examination by the applicant.
The rules for loan application approval are slightly looser in P2P platforms compared to bank houses, so even a person who has not been lent by a bank can reach a loan, but it certainly does not mean that everyone can get it. Reasons for rejection may or may not be due to insufficient income, troubled financial history, or ongoing execution. However, each application is assessed on a case-by-case basis and the potential risk is also borne by investors. Therefore, people who would be rejected by the bank without hesitation could succeed in certain circumstances.