Peer-to-peer Lending: A Latest Financial Innovation

The leading Peer to Peer lending platforms are experiencing about two hundred per cent growth over time because they generate profits of up to billions in loans.

The timing of the P2P lending industry’s progress is perfect. In times of economic recession, the traditional banks that once provided the loans easily encounter difficulties in offering the loans to the clients. That is preventing them from serving the ideal consumer. So, the people who are in need of loans have been searching for other options. That is where P2P lending has provided relief to the borrowers. Previously, there was a vacuum in the financial industry, and P2P lending has assisted in filling it by outperforming the banks in the loan market. But, you should know what Peer to Peer lending is and why the lenders are so enthusiastic about it.

What is Peer to Peer lending?

P2P lending links consumers with the investors who like to assist them with their cash financially. Additionally, no banks or traditional lenders are doing enough transactions, and their interest rates are typically lower for borrowers. Also, the investors can gain a decent amount of profits in less time than conventional bank loans.

Peer to Peer lending is rapidly growing as a trustable financing facility for individuals who cannot obtain loans from banks.

For joining the Peer to Peer lending platform, there is an application process for all the interested consumers, with criteria varying on each website. Usually, most of the websites require above-average credit scores that are between 640 to 660 at minimum. This score decides the interest rate and risk category that the P2P platform assigns to the borrower. Interest rates vary between 7% and 26% for most lending websites. The risk category will inform the investors how much risk they can take by giving a loan. Like category A, loans will have low interest rates that tell lenders that borrowers have lesser chances of defaulting.

Typical range of loans at Peer to Peer lending platforms start from £1000 to £2000 and reach up to £25000 for most P2P websites. Loans are provided for a three to five-year term, and borrowers must make an origination payment of around 1.11% to 5% at different websites. The P2P platforms also calculate how much the borrowers will pay according to their credit score. There is no other additional fee you have to pay except when you make late payments.

How much money do you Need to Invest?

To be an investor, you must provide proof that you own assets to back up the investments. Additionally, you can make investments from amounts as small as £25 per loan.

Lenders do not have to make payments for registering at Peer to Peer lending platforms, but they have to pay one per cent of their earnings every year. They also have to pay taxes because all profits are charged with income tax. You can avoid paying taxes by transferring your earnings to the IFISA (Innovative Finance Individual Savings Account), where there is no tax charged on your income.

 The one with an above-average credit score has the benefit of borrowing at the minimum interest rate. The Peer to Peer lending company allots each borrower an interest rate below which they cannot obtain the cash.

What’s the Benefit of Investors in it?

If you have been inspecting the interest rates of banks and lending institutions, you will be aware that their interest rates are low. You can compare that to the famous Peer to Peer lending platforms that provide loans at interest rates as high as ten per cent. So the P2P lending offers better profits.

In P2P lending, a lender lends money to a borrower, but without the presence of any streamlined financial institutions, like banks. Any new investor or lender can lend money to any borrower who registers with the P2P platform. Borrowers and lenders can make a contract showing their legal agreement about the amount of money in the transaction with the agreed interest rate. The borrower with above-average credit ratings can benefit from borrowing at the minimum interest rate and vice versa. Each Peer to Peer lending company charges a fee on the transactions that are conducted on their platforms.

Conclusion

The famous P2P lending platforms are benefitting from about two hundred per cent growth recently since they are generating profits in billions from loans. Moreover, the P2P lending industry’s progress is ideal since these are the times of economic recession, so the traditional banks that were providing the loans efficiently are not in a position to lend now.  Peer to Peer lending connects individual borrowers with the lenders who prefer to help them with the cash. The best thing about P2P lending is that it removes the banks from the process. So everyone can borrow and lend some money fast and at a reasonable interest rate.