Pros and Cons of Peer to Peer Borrowing

Social lending or peer to peer lending has sprung up from the massive decline in faith that consumers have in banks and credit card companies. Banks fees have risen and  borrowing request are routinely turned down, credit card companies have been lowering credit limits and increasing interest rates and penalty fees.   More and more people are turning to alternative means for their borrowing needs.

One of the reasons peer to peer can offer lower interest rates are because they operate online. The high overhead associated with brick and mortar is just not there. The savings is then passed onto the borrower in lowers fees and the lender in way of higher returns.

Who uses this type of loan?

Anyone can apply for a peer to peer loan and this type of loan can be for any reason. Most lenders will want you to set up automatic repayment of the loan so you will need to have a checking account with direct deposit. Of note – not all lenders will require automatic repayment. That’s the beauty of peer to peer lending; it’s as individual as the people and reasons for needing a loan.

Pros

  1. Can be used for any purpose
  2. Fees are generally lower than traditional bank loans
  3. Interest rates are generally lower than traditional bank loans
  4. Easy to use step by step application process
  5. Less documentation required
  6. No collateral required, this is an unsecured loan
  7. You can explain your bad credit history and sell your story to investors
  8. Borrowers can build a ‘borrowers’ reputation, this of course can go for you or against you, but if you make your payments on time and payoff your loan you could get a loan with more favorable terms next time you need money.

Cons

  1. Collections fees can be steep if you default on the loan
  2. Late payment fees can be as high as a payday loan.
  3. Can be hard to get a loan if you are self employed
  4. Rates increase with the length of the loan

Peer to Peer sites might be the be the answer to your funding needs, but like all loans you need to read the fine print before signing.

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2 Comments

  • CAROL BLOUNT says:

    I am a 72 yr old woman who became very ill in 2012 and I have very high
    drug costs and outstanding medical bills.
    The medications have affected my mouth and I am losing my teeth. I need
    to see a dentist but my medical bills will not allow me to get my teeth
    replaced.
    I am on a monthly income and I am suffering because of my illness.

    I do hope that I someone would be able to help me.

    Thank You,
    Carol

  • anthony humphrey says:

    I would like to borrow to pay off some high interest debt and improve my credit score. my credit score is not great but, I have a decent income and I make my payments ontime. I am also open to making monthly ach debit payments.