Looking for Loans – The Peer to Peer Lending Market
Current reports on the economic climate are somewhat conflicting; some are stating that the UK economy is stabilising, with promising signs being shown in industry and news that bank borrowing is increasing, whereas others are singing a very different tune.
These positive reports are seen by many as proof that the economy is back on track, but the warning reports that many people are finding it difficult to cover their monthly outgoings are worrying, particularly as this is pushing people to turn towards more unorthodox forms of funding.
The financial crisis that we have all seen and felt is partly to blame for the shift in the loans and personal finance markets.
Due to the lack of lending controls in place before the financial crisis, money was lent far too freely in unsuitable circumstances – i.e. borrowing amounts that could never be repaid. This has led to banks becoming much more cautious in who they approve loans for over the last few years.
Peer to Peer Lending
Peer to Peer lending or P2P lending, as it is sometimes written, is one of the most recent inventions within the borrowing world. P2P lending uses the principle of many investors offering a customer the money they require – a bit like Dragon’s Den, but with a larger number of investors contributing smaller amounts of cash. You may have heard this referred to in the past as “Crowdfunding”.
There are more and more companies beginning to trade within the industry, such as Zopa, Crowdfunder, CrowdCube and Kuber Ventures. Many of these offer rates similar to banks and supermarkets, with low rates of interest being offered.
However for these rates, you get checked out just as thoroughly as you would when applying for a typical personal loan offered by high street banks and supermarkets. This may not be ideal for those who have a poor credit history, and has led to these people looking elsewhere.
The DIY P2P lending experience
Browsing the forums across the web, you will find hundreds of posts by bloggers and contributors looking for loans of varying amounts of money and bypassing the official P2P lenders.
The share space and discussion forum Reddit is filled with posts from users seeking financial help.
Worryingly, many of the posts talk of unpaid repayments from unhappy lenders warning other Reddit posters of the rogue users who have failed to repay their money.
This raises questions about the practices and shows that you should always go to a reputable lender for a P2P loan – never try to set it up with a stranger yourself.
How secure is a DIY P2P lending deal?
As a borrower, the security risk is made by giving away your sensitive financial details to people you may never have met or spoken to outside of the World Wide Web.
Banks make every effort to limit the contact you receive via the web due to concerns over web security.
The bigger risk is placed upon the person looking to fulfil those loan requests i.e. the lender, with the anonymity offered by the internet; it is much easier for borrowers to avoid their repayments.
How likely is it that I’ll receive the funds I need?
The issue of finding funds is completely hit and miss and depends upon who you ask and where you ask. Anyone looking for a large amount over £500 is unlikely to find a willing lender, due to the inherent risks with the system.
How do I know I won’t be chased for more?
As the practice is relatively new, and in this instance a very informal agreement, there are few widely recognised cases of informal, DIY P2P lending to show people “how it’s done”, so people are likely to charge different rates of interest and ask for different lengths of time for repayments.
The alternatives to DIY P2P lending
One of the most high-profile forms of lending is the payday loan. These revenue sources have gained a large amount of attention for the high amounts of interest charged on the loans offered, typically in the thousands of per cent. The length of the loan is typically shorter than most other forms of loan.
Another option is the guarantor loan. Guarantor loans may be seen as a new alternative to traditional bank loans in the current climate, but guarantor loans have a long history of providing those with limited means with the money they are looking to borrow.
Guarantor loans rely on the customer finding a person who is prepared to guarantee the borrower can cover their repayments, and in the event of a missed payment, cover the outstanding repayment. Guarantor loans are provided at much lower interest rates than payday loans and the length of the loan is judged in months and years, rather than days which can mean the repayments are much more manageable than a payday loan.
Category: Loans
