The personal payday loan person, also known as P2P loans, does not come from traditional lenders such as banks, credit unions and financial companies. Instead, you are borrowing money from another person or people. You will pay interest on your loan, but it may make it easier for you to get approved for one of them through a traditional bank loan.
What is P2P?
P2P loans have changed the world of lending. In the broadest sense, a P2P loan can happen between any two people, including loans from friends and family.
Any two people can establish a loan and repayment arrangement that is mutually beneficial, preferably with a written agreement.
That said, P2P lending typically refers to an online service that handles all the logistics for borrowers and lenders. In addition to providing contracts, processing payments and evaluating borrowers, P2P lending makes it easy for people to connect. Instead of borrowing only from people you know or those in your community, you can access each company website and apply for loans from individuals and organizations across the country.
Numerous websites have made P2P credits available. Prosper.com has been one of the pioneers, but there are plenty of others, and new lenders are popping up on a regular basis.
Why use a person for personal payday loans?
You may be wondering why you would try P2P loans instead of a traditional bank or credit union. P2P loans can help address two of the biggest challenges facing individuals: cost and approval.
Lower costs: P2P loans are often cheaper than loans available from traditional lenders, including some online lenders. Applying for a loan is usually free, and origination fees are approximately five percent or less on most loans. Perhaps most importantly, these loans often have lower interest rates than credit cards.
Most popular lenders offer fixed interest rates so you have a predictable, monthly level payment. P2P lenders do not have the same overhead costs as the largest banks with large networks, so they pass on some of these savings to borrowers.
Easier approval: Some lenders just want to work with people who have good credit and the best debt-to-income ratio. But P2P lenders are often more willing to work with borrowers who have had problems in the past or are in the process of building a loan for the first time in their lives.
With good credit and strong revenue, loans are cheaper, as is the case with P2P lenders as well as traditional lenders. However, in many communities, lenders who are interested in working with low-income lenders or people with poor credit, charge significantly higher rates and fees. Those lenders then have only a few options, such as related products on the day of payment.
Several P2P lenders that offer loans for people with credit scores as high as 520. Other P2P lenders that lend to people with less-than-optimal credit scores can charge up to 36 percent of interest, but that still comes out of loan.
P2P loans are often, but not always, unsecured personal payday loans, so you don’t need to pledge any type of collateral to get approved.
How does it work?
Every P2P lender is different, but the idea is that there are a lot of people out there with money to borrow, and they are looking for a borrower.
These individuals want to earn more than they can get from a savings account, and they are willing to make reasonable loans. P2P sites serve as a marketplace for connecting borrowers and lenders.
Qualifications: To borrow, you usually need decent, but not perfect, lending. Again, different services have different requirements, and lenders can also set limits on how much risk they want to take. With most large P2P lenders, several risk categories for investors are available. If you have high coupons and income, you fall into the lower risk categories. Some lenders look to “alternative” information such as your education and work history, which can be helpful if you have a limited credit history.
Application: With most lenders, just fill out an application similar to any other loan application. In some cases, you will provide a personal proposal or otherwise tell the lenders about yourself and your money plans. You may even be able to use social networks to help them get approved. Once your application is accepted, the financing may be more or less instantaneous, or it may take several days for investors to decide to fund your loan.
Costs: You pay interest on any loan you receive, and interest costs are paid into your monthly payment (these costs are generally not charged separately). In addition, you are likely to pay a origination fee of a few percent of your loan amount, and although the better your risk profile, the lower the fee. Be sure to consider this cost when determining your loan amount, as it may reduce the amount of money you receive. Additional fees may be charged for things such as delays, returned checks and other irregular transactions.
Repayment: If you are granted a loan, you will generally repay for a period of three to five years, but you can usually pay without penalty. Payments automatically come from your checking account, unless you set up something different, so the process is effortless.
The original P2P lenders financed your loan from other individuals. Now, space is evolving, and financial institutions are increasingly financing loans, either directly or indirectly, instead of individuals. If this is important to you (it may not matter to you – as long as you get credit from someone), research the service you are considering using and find out where the financing comes from.