Peer to Peer review

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What is Peer-to-peer lending?

Peer-to-peer (P2P) lending is a method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios. P2P lending is also known as social lending or crowdlending.

Peer to peer (P2P) lending is a way to borrow in Nigeria without using a traditional bank or credit union. If you’re in need of a loan, you’ll definitely want to look at a few P2P lenders as you shop around. If you’ve got good credit, P2P loan rates can be surprisingly low. With less-than-perfect credit, you’ve still got a decent shot at getting approved for an affordable loan with these online lenders.

P2P loans are loans made by individuals and investors – as opposed to loans that come from your bank, People with extra money offer to lend that money to others (individuals and businesses) in need of cash. A P2P service (such as a website) matches lenders and borrowers so that the process is relatively easy for all involved.

 

How it works

Peer to peer lenders fund your loans in two ways. Some sites post your application for up to 14 days, giving potential investors opportunity to review your application. Investors then decide to fund your loan, providing a portion of your total requested amount. One disadvantage of these types of lenders is that you may be required to raise a certain percentage of the funds. If your request reaches 100 percent funding or the listing time expires – given you meet any percentage requirements – you may accept or decline the loan. The time to receive the loan depends on how long it takes investors to fund your loan plus standard processing time, typically a few business days.

The alternative way P2P companies fund your loan is by approving your application and drawing funds from a pool of blind investors rather than having investors individually review your application. In this case, you do not have to wait for your loan to be funded because the company decides to fund your approved amount in full, and the time to receive your loan is simply the time for confirming information and processing. Typically, this process takes a few business days, though some services offer same-day or next-day deposits if all paperwork is in order.

After you receive your funds, you pay back your loan in equal, monthly payments.

Typically, P2P loan terms are between one and five years with three- or five-year terms being most common. A few factors affect the term of your loan, but most often, the amount of your loan and your loan grade weigh mostly heavily in determining the term.

  • Peer funded (individual): Individual peer support is a new type of funding alternative for both borrowers and lenders. Peer funded loans are provided by regular individuals or peers and not financial institutions.
  • Peer funded (group): Similar to individually funded peer loans, many hedge funds, bank endowment funds and other large investors fund personal loans through the peer-to-peer or social lending platforms. The difference between individual and group peer funded loans is typically the amount of money lent-groups typically lend greater amounts than individuals.

 

 

Benefits of Borrowing with P2P

P2P loans aren’t always better than loans from a bank or credit union, but they have some unique features that make them competitive.

  • Low costs: you can often borrow at relatively low rates using P2P loans. You just need to pay enough interest to make your lender happy – and most of the interest you paygoes directly towards compensating your lender. With banks and credit unions, there are higher overhead costs for branch networks, other lines of business, and a large workforce. P2P borrowing is usually a better deal than using a credit card, but it always pays to compare rates.
  • To get your loan funded with a P2P lender, expect to pay an up-front origination fee of 1% to 5% of the amount of your loan.
  • Compared to a personal loan at a bank, those fees can be high. On the other hand, they can come in lower when compared to a second mortgage(and the process is easier). Of course, there are additional charges for items like late payments.
  • Quick and easy: shopping for loans is a pain. And after you apply, you might have to wait a while to find out if you’re approved