Crowdlending or as it also widely known, peer-to-peer lending (P2P) can be defined as the exercise of lending money to either business or individuals through an online platform that directly matches borrowers with lenders, and therefore circumventing banks or any other financial institutions.
Crowdlending is operated online, so they can avoid high overhead and offer the service more cheaply as compared to the traditional financial institutions.
With crowdlending, borrowers can obtain loans at lower interest rates, investors or lenders receive a higher return than in savings in terms of investments products offers or deposits offered by banks and other financial institutions; and P2P lending companies take a benefit of providing the loan market platform, connecting directly borrowers with lenders, and credit checking the borrower.
The Borrowing Process
The P2P platform connects the borrowers directly to lenders or investors. The website sets the rates and terms of borrowing, as facilitating the transaction. A P2P site can have a wide range of interest rates depending on the creditworthiness of the borrower.
The borrowing or lending process is quite intuitive in most of the sites. First, the lender opens an account with the site and deposits a sum of money to be distributed in loans. The borrower or loan applicant posts their financial profile that is allotted a risk category that dictates the interest rate the borrower will pay.
The borrower can then review the loan offers alongside the assigned interest rates and accept one. An applicant can also break up their loan request into lumps and accept multiple offers. The site takes care of the rest including money transfer as well as the monthly payments.
The entire borrowing process can be entirely automated or borrowers and lenders can choose to haggle.
Some P2P lending platforms specialize in specific types of borrowers, such as small businesses, or professionals.
Benefits of Getting a Loan with P2P Lending
There is no secret that peer to peer lending industry has moved at warp speed since the first platform was launched in 2005. Today, there are more than 20 P2P platforms worldwide that offer borrowers a solid alternative to traditional banks and other financial institutions. Here are the advantages of getting a loan with P2P lending.
With peer to peer lending platform, you simply start with putting a few pieces of personal data into an online application system and can be approved within minutes. You can submit your application from anywhere so long as you have access to a computer and the internet.
This is perhaps the most attracting aspect of the P2P lending site. Currently, the average interest rates of a crowdlending platform are approximately 7 percent APR. Approved borrowers will be offered with a number of different payback periods that range from 1, 3, or 5 years. The interest rate is adjusted accordingly up or down depending on the selected terms.
The third benefit of obtaining a loan with P2P lending is the speed with which you receive the funding. Typically, the loan takes one to three weeks to be approved depending on its size. Small loans such as under $5,000 may take a few days.
The peer to peer model allows many investors to inject in their money, making it easier for borrowers to get up to $100,000 or more.
Unlike banks, crowdlending sites offer borrowers a wide range of unsecured loans for every need. It can a loan for repaying another loan, planning a wedding, funding a vacation, or business. The best part is that you can choose the interest rate that suits you, as well as the loan and the timeline for repaying the loan.
Banks and other financial institutions may charge you a pre-closure fee of up to 4 percent if you want to close a personal loan early. However, in P2P, loan repayment after three months no charges. Also, just selected banks will allow you to make part-payment.