Peer-to-Peer (P2P) lending is a fairly new arrival in the financial game mostly due to the rise of online lenders and loans thanks to advancements in modern technology.
Peer-to-peer lending is convenient & affordable
In the past, if a borrower wanted to obtain finance, they would have to visit a physical branch, wait in a queue, complete an array of paperwork, and speak with a financial advisor. However, modern technology has allowed borrowers to skip all of the above and head straight to completing an online loan application.
Similarly, new platforms have emerged along with these new practices and borrowers are loving it. P2P lending has become particularly popular in the UK among businesses and consumers alike showing lending values of £2.03 million in the business sector and £1.4 million in the consumer sector. But what exactly is P2P lending and why is it becoming so popular?
The online platform makes it convenient to apply for a loan
P2P lending allows borrowers to be matched with lenders over an online platform created specifically to host these interactions. P2P lending companies facilitate these transactions and, since everything is hosted and operated online, their overhead costs are significantly less than that of physical lenders. This is why they can offer their services at a lower cost than traditional financial lenders.
The popularity stems from the reduced costs as well as the ability for lenders to generate higher returns on their investments and borrowers are charged lower interest rates making this deal excellent for both sides of the stick.
If you would like to learn more about P2P lending, then check out these five advantages of getting involved with P2P lending in the UK.
#1) Cut out the middleman altogether
P2P lending allows the borrower to cut out the middleman entirely and link up with the lender directly. The benefit of this is that the borrower will not incur the expensive fees that banks and other traditional financial institutions are associated with.
All the borrower needs to do is list their financial needs on the P2P website and an investor (lender) will determine if they would like to invest money into their venture or aid. Because the entire model is based on cost-saving, investors are drawn to it as they are also capable of reeling in large amounts of profit.
The P2P lending provider simply acts as a facilitator throughout the lending/borrowing process to ensure that everything runs smoothly and as agreed upon.
#2) A safer way to borrow money
While P2P lending has been voted better than most traditional personal loans, there is one factor that can be considered both an upside and a downside at the same time: lending and borrowing requirements.
Because the P2P transaction is based entirely online and the lender and borrower remain entirely anonymous, the requirements to register as a lender and/or borrower are very strict. Sometimes even stricter than traditional financial institutions.
The P2P provider needs to properly ensure that the borrowers on the listing are completely trustworthy otherwise investors will not be interested in making use of the P2P platform.
P2P lending is also considered less risky than many other forms of investment because of the ability to diversify the risk. Instead of lending a single large sum of money to one borrower, the investor can borrow smaller sums to multiple borrowers.
This way, if one of the borrowers are unable to meet their repayments, the investor only loses a small sum of money instead of a single large sum lent to one borrower.
The anonymity is also a great way to avoid any kind of discrimination. Unfortunately, we live in a society where stereotyping and general discrimination is rife, and the world of finance is no exception to this.
Since the P2P lender acts as the intermediary in the relationship between the borrower and lender, and all transactions are completed via the platform, the borrower and lender never have to meet eliminating the risk for discrimination of any kind.
#3) Know what your money is being used for
Many lenders enjoy making use of P2P platforms as they can see how their money is being used and how it is making a difference in the life of the borrower. When money is invested at a bank, the investor feels completely disconnected from the process, but P2P lending provides investors with a sense of personal satisfaction.
On the P2P platforms’, lenders can specifically choose who they wish to assist. There have been cases where prospective borrowers have bad credit histories, but their stories and needs have convinced lenders to assist them regardless of the risk and lower return.
P2P platforms have proven to promote charitability and encourage a culture of helpfulness. Forums are often abuzz with active users who exchange helpful information regarding borrowing and lending practices. The bond that develops between borrower and lender is undeniable and is one of the reasons why many individuals prefer P2P lending to traditional banking.
#4) Lending that is efficient & convenient
One of the worst aspects of traditional banking is waiting around. Everyone is busy but when you need money for vehicle repairs or want to start with your home renovations, then waiting for a response on a loan application can be quite frustrating.
However, since P2P lending occurs completely online the lending/borrowing process is significantly faster for both parties. With the ability to apply online, borrowers do not need to take time off of work or wait in long queues. All they need is an electronic device with Internet connectivity and they are good to go!
The P2P lending platform is programmed with an algorithm that compares the borrowers and lenders on the platform and uses the available data to find the ideal financial match.
This automated process has a fast turnaround time and can be completed within a day or a maximum of 48 hours – which is still significantly quicker than traditional financial providers and ideal if you need to secure money fast!
#5) Great amounts of flexibility
Traditional financial providers tend to be stuck in their ways and are often unwilling to adapt, while P2P lending platforms are more flexible and adaptive. For starters, P2P lending does not require any assets for collateral as most loans are classified as unsecured loans.
The other great thing to know is that overpayments and early settlements are common practice and often encouraged. Where a traditional lender would charge a fee for making an early settlement, P2P lending platforms allow borrowers to settle or overpay for free.
The borrower also decides when they would like to make their repayments. If the borrower wishes to align the repayment date with the date that they get paid, then it is possible to do so. It is also possible to change the date if needed.
It is quite obvious from these five advantages of getting involved with P2P in the UK, that borrowers and lenders are moving away from traditional lending/ borrowing practices and heading to the more modern P2P option.
While this platform is new to the financial game, there is no doubt that it is rising with popularity daily. If you have not tried P2P lending then do some research, choose a platform, register, and try it out!