Taking Loans From Friends (Peer-to-Peer Lending Overview)
When loaning money to friends, it can be difficult to find a safe way to do so. While you can send money through virtual money transfer services, these services also have a maximum transfer limit. To work around this, many people use peer-to-peer lending services.
What is Peer-to-peer Lending
Peer-to-peer lending allows borrowers to avoid financial institutions like banks and connect directly with individual lenders. This means that acquaintances can finance loans to each other through peer-to-peer lending services instead of through a bank or credit union.
Borrowers might want to use peer-to-peer lending if they have bad credit and do not qualify for traditional loans. However, lenders generally have discretion in who they lend money to, so borrowers with low credit may face high interest rates and costly payments.
Investors may also use peer-to-peer lending as a way to generate returns on their investment. While most people traditionally invest in the stock market and bonds, peer-to-peer lending can also offer decent returns on an investment through interest payments. Of course, it’s important to note that some peer-to-peer lending sites will take a cut of the profit earned by lenders. Lenders should also be cautious of loaning high amounts to borrowers with low credit, as there is a risk of the borrower defaulting on the loan payment. As a result, if you are an investor seeking a safe return on your investments, it’s important to consider borrowers with high credit scores first.
Things to Note about Peer-to-peer Lending
Peer-to-peer lending services will generally charge an upfront fee when a loan is run through the service. This fee can range from 1% to 8%, so it’s important to compare lenders before choosing.
For borrowers looking for quick loans from peer-to-peer lending, it’s also important to note that it can take longer for peer-to-peer loan applications to be filled out. Multiple lenders will review the loan application and see if it fits their risk tolerance before lending money. If you have low credit, it can especially take a while for your loan application to be approved.
Popular Peer-to-peer Lending Services
Prosper: 7.95 - 35.99% APR, 640+ credit score
LendingClub: 10.68 - 35.89% APR, 600+ credit score
Upstart: 7.00 - 35.99% APR, 620+ credit score
Peerform: 5.99 - 29.99% APR, 600+ credit score
Peer-to-peer lending can be an easy way for borrowers to loan money from other individuals or groups instead of through a bank. As a result, if you need to loan money to a peer, it’s worth considering peer-to-peer lending. Lenders can also earn a safe return on their loans by lending to people with good to high credit. However, peer-to-peer lending services will deduct a fee from the loan transaction and can take a while to process loan applications.