The concept behind peer to peer lending is when a single person lends money to another to help them meet their financial obligations. Many individuals use peer to peer lending as a way to refinance their debt, while the person giving out the loan benefits because they are earning a high interest rate on their investment.
Is Peer to Peer Lending Safe?
There is a legitimate concern about the safety of peer to peer lending. How does either party know the other is going to meet their obligations? The truth is that you cannot be sure unless you verify the safety of the transaction you are undertaking.
That is why looking at different options for personal loans and P2P lending is the best solution. You can find them on many websites such as https://letmebank.com/personal-loans-for-bad-credit-not-payday-loans/.
What is P2P Lending?
Peer to peer lending is an online system of lending where an individual investor funds a loan for an individual borrower. Sometimes the transactions are one to one, where the investor covers the entire loan, while there are cases where a buyer gets the entire loan by partnering with many lenders.
It is a little scary when you first hear about P2P lending, as people assume they are going into the wild west to try and find a loan. But it is not the case. There are many programs and structures in place to ensure the process is safe.
Software is used to match borrowers with lenders depending on many factors. That includes the amount of the loan, credit worthiness, and the region where both parties are located.
What Does It Cost?
There are two costs associated with a P2P loan. The first is the interest rate that you are paying on the principal balance. Then you have the fees that are charged by the P2P lending platform.
Most of those fees are minimal, but you will have to be careful regarding interest. There is a temptation to go ahead with a P2P loan, but you have to ensure that you are getting a net benefit compared to your present situation.
Using P2P Lending to Consolidate Loans
As we mentioned earlier, there is a growing movement of people who are using P2P lending to refinance their existing loans. Say you have a total debt obligation of $5,000 and it is reflected over four different loans.
Those loans may have a rather high interest rate, and the total you have to pay each month is a little more than you would prefer. Now you can look to a P2P lending platform to see if you can find a better deal.
You may find a lender who is willing to give you the $5,000 at an interest rate is slightly lower compared to the rates you are paying. Now you are getting an advantage over your existing debt, as you can pay back the $5,000 with less interest paid compared to your present loans.
Why Do Lenders Benefit?
There is a legitimate question among many about P2P lending. It is obvious why a borrower benefits, as they get a loan at a reasonable interest rate that can help them through different circumstances.
But what about lenders? The answer is that an individual lender gets the chance to make a good return on their investment. If they agree to a $5,000 loan that is due within three or four years, they can earn a lot more through interest compared to that money being in a bond or safe mutual fund.
Rebuilding Your Finances with P2P Lending
It is possible to use P2P lending as the first step to rebuilding your finances. If you are drowning under your existing debt, you can look to a P2P lender to help you with a lifeline.
They give you a better interest rate and a lower monthly installment, which allows you to save more money and ensure that you are not reneging on any of your debts. It may take a few years, but you will eventually be debt free.
Other Tools to Boost Finances
Other steps that you can take include taking out a secured credit card, as it is a tool you can use to quickly boost your credit rating.
Do not think of a secured credit card as a way to borrow more money. Use it as you would your debit card for everyday purchases. Keep to the limit on the card and pay it all off at the end of the month.
The card company will continue to report to credit agencies, which boosts your credit. And with the help of the P2P loan, you will soon be debt free!