In the wake of Coronavirus across the world, lots of people lost their jobs, and earning sources are also rapidly closing down. In such situations, people are opting for small business sources. Many of them started selling products online and they are depending on crafts and other things that they can sell and earn money out of it. But when you want to start a new business or a venture, you need a sudden and huge source of money. Borrowing money in the starting phase of your business is very common and for this one needs to go to the nearest bank.
Why not banks?
Banks are out there to offer you loans for a certain amount of money. But in most cases, they check the credit report of the person that went for the loan. A credit report is a person’s financial report card prepared by the bank. If the person has borrowed money in the past, the credit report shows whether he has paid the loan on time or is delayed! Depending on his actions of giving the money back, the credit report is calculated. If the credit report comes as per the requirements of the bank, you will be eligible for the loan.
Why is everyone not eligible for a loan?
But unfortunately, most of the individuals are not eligible for the bank loan! The main reason behind them not being selected for the loan is the credit report. If you are an entrepreneur and your business is not listed on the tax list, you will not have a credit report. If you do not have a credit report, no bank will stand beside you when you require the loan amount. To get eligible for the loan, you need to abide by some rules and you have to have an impressive credit report. So, if you haven’t taken any loan before or if you do not have a prominent work to show, you will not be eligible for the loan ever!
What is P2P lending?
Now comes the saver for you! P2P lending is one of the biggest savers in such a situation. It is also called peer-to-peer lending or person-to-person lending. Here, a person will borrow from another person and there will be no bank involved in the transaction. As the bank is not involved, the work will be done quickly and without much hassle. You just need to go through the requirements of the person before you. If you two are satisfied with the loan amount and the interest rates, you can lend money to someone and one can easily borrow money from you!
Benefits of peer to peer lending
- When we talk about lending institutions, not every individual is eligible for a loan from there. You need to maintain a high credit point. But not everyone is able to keep their credit points high! Hence, Peer to peer lending is quite flexible and important for these people.
- Here you know the lender in person and if you want, you can negotiate with the lander on your own. In the case of the lending institution, the institution will negotiate on your behalf and they take a good amount of money from both the lender and the borrower. But in this case, there is no money leak taking place!
- It is not very time-consuming. In the case of the lending institutions and banks, they will ask you to go through lots of paperwork and you need to read lots and lots of rules and regulations and then only you can sign the contract papers! But in case of peer-to-peer lending, the negotiations are done in the first place and now the process of loan will be done within some hours only! So, if you are in a need of an urgent money flash, you should definitely try peer to peer lending.
- The interest rates are obviously on the higher side in peer to peer lending. You are getting money on an urgent basis and you do not need to be eligible for any term! You will also get the money quickly in this form of money borrowing! If you get all such good things from peer to peer lending, you need to negotiate with the higher interest rates. As the interest rates are quite high, the lenders will get benefited from this type of money lending. So the platform is getting more popular with each passing day!
- In the case of lending institutions, a prepayment penalty is a huge problem. But in case of peer-to-peer lending, you do not need to get bothered about this!
It is also a bit risky. Let’s discuss the risk factors associated with this peer to peer lending:
- Borrowers cannot repay! If the person you have lended the money cannot give it back on time, it is known as defaulting! But in the case of banks, there is a financial compensation scheme going on. Though in the P2P field, there is also a contingency fund, but before you enlist yourself on a P2P website, check their contingency fund details!
- Site goes down! Sometimes you might see companies go down without paying you back. If the P2P site goes down, which actually happened earlier, you may face a big loss.
- Not repaid on time: If the money is prepaid early, you will be benefitted and you can give it on loan again. But if the money is not repaid one time, you are losing both time and interest rates as well! This is one of the biggest risks associated with P2P lending.
Endnote: If you are lending money or borrowing from someone on the P2P site, you are taking a risk. So, try to know more about each other before you actually give a loan or take money from someone.