Benefits of Peer to Peer Lending
How will I Benefit as a borrower?
As a borrower you will benefit in multiple ways...
One of the most attractive benefit is that borrowers can experience a lower cost of borrowing, this means that they pay a lower interest rate by taking a loan from a P2P lending website rather than using a bank.
In addition to getting lower interest rates, there are also typically fewer fees involved in P2P lending. The investors offering the loan operate with lower overhead costs and, therefore, provide the service cheaper than any traditional financial institutions.
Are you wondering what fees we are referring to? Well, there are many fees that your bank charges you when you are taking out a loan, for example application fee, processing fee, loan commitment fee, and many others. With P2P lending there are fewer fees.
Not only this, but obtaining a loan using P2P lending is much quicker than borrowing from a traditional lender. In most cases, P2P Lending provides access to a large network and community of lenders and investors which increases the borrowers chance of getting a loan. A borrower could be approved for a loan in a matter of minutes, and can even receive the funds within one or less than 15 days time. The loans can be funded by one investor or by several.
Another major benefit of P2P lending is that borrowers have fewer constraints when applying for loans. Borrowers simply explain what they need the money for and lenders can determine whether they want to loan you the money or not. This differs from banks, as banks may have restrictions on how the money can be spent etc. For example, some P2P lenders may have no penalties for lenders using the funds for purposes such as debt consolidation.
How will I benefit as a lender?
Just as cutting out the middleman saves money for borrowers, it also saves money for investors. Perhaps the greatest draw to P2P lending for investors is the high returns. Lenders can receive a higher rate of return on P2P loans compared to other traditional forms of investing.
And while the higher returns come with the riskier loans, investors are able to diversify their loan portfolio by choosing to lend to riskier borrowers as well as borrowers with a good credit score etc. In addition, investors can decide how much of their money they want to loan to these riskier individuals. Many loans can be purchased in small amounts such as $500 JMD so that a lender can choose to fund a small or large portions of loans, depending on their risk appetite.
Greater transparency is another benefit that P2P lending provides Investors. They can see whom they are lending to and what their money will be used for. Lenders can choose only to invest in the loans that they are interested in. For example If you don’t want to lend to someone consolidating a debt, then don’t invest. If a loan seems very risky, but you are feeling charitable and really want to help the person out, you can do so. You can choose to invest only in the borrowers that you want to invest in.
Note: Edited version 2018
Reference: http://www.financetopic.com