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Borrowing With Peer-to-Peer Loans: How it Works

Updated: Feb 12

Peer to peer (P2P) lending is an option for borrowing from individuals without using a traditional bank or credit union. If you need a loan, it’s worth evaluating P2P lenders as you shop around. Especially if you have good credit, P2P loan rates can be surprisingly low. Even with less-than-perfect credit, you may get approved for an affordable loan with these online lenders.

What Is P2P Lending?

P2P loans are loans that individuals and investors make—as opposed to loans that come from your bank. People with extra money offer to lend that money to individuals and businesses through online services. A P2P service (typically a website) is a central marketplace matching lenders and borrowers, making the process relatively easy for everybody involved.

Benefits of Borrowing with P2P

P2P loans aren’t always better than loans from traditional banks and credit unions, but they are typically competitive.

Low rates:

You can often borrow at relatively low rates using P2P loans. Banks and credit unions have to cover 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’s always worth comparing rates. As you do so, pay attention to promotional rates, and determine whether or not you’ll pay off your debt quickly.

Origination fees:

You may need to pay an up-front origination fee of 1 to 5 percent to fund your loan with a P2P lender. That charge depends on the total amount you borrow, so a €1,000 loan might feature a €50 fee. Compared to a personal loan at a bank, those fees can be high. On the other hand, you’d probably pay more for a second mortgage (and the process is easier). Of course, you pay additional fees for things 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. With P2P loans, some of that pain is eased. The application process is typically straightforward, and you can often find out relatively quickly whether or not your loan is likely to get funded. Actual funding might take a few days or longer (as investors choose whether or not to put money towards your loan). Decisions are increasingly quick, as non-bank lenders online fund loans as large investors.

How it Works

To borrow with a P2P loan, choose a lender and start the application process. You typically need to provide details about yourself, and the lender may ask what your plans are for the money. The lender checks your credit, and if you’re eligible for the service, investors can fund the loan.

With some P2P lenders, funding is fast, but you may need to wait for funding. The process can take several days or a few weeks. If your loan is funded, you receive the money electronically and repay the loan with automatic electronic payments. You typically repay over three to five years, but you can almost always prepay without any penalty—which helps you save money on interest.

If you are looking for a P2P Loan click on the link below:


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