Guide to Peer to Peer Loans
The idea of peer to peer loans is that people who want to borrow money are put in touch with people who want to lend. Also has been called crowdfunding.
What Are Peer to Peer Loans?
No banks or building societies are involved in these transactions. Peer to peer lenders often referred to as loan based crowdfunding are regulated by the Financial Conduct Authority. Another organisation called the peer2peer Finance Association was also set up to help regulate this particular form of lending within the UK.
Key Features of Peer to Peer Loans
- Peer to peer websites exist which will put potential borrowers in touch with potential lenders
- Interest rates are often lower than traditional loans particularly if you have a good credit rating
- Credit checks will be carried out on potential borrowers
- You can borrow quite small amounts e.g. there is no minimum level set
- Most companies allow you to repay loans early with no financial penalty
- You will need to pay a fee to the company acting as the intermediary between you and the lender even if the loan is not fully funded
These vary depending upon your credit rating but do check the details of any agreement as in some cases the rate is variable so it can go up or down each month. A fee is also usually charged to arrange the loan.
You will go onto one of the peer to peer lending websites where you select the amount you want to borrow and how you want to repay, over what period. The company will then look at who wants to lend to you, sometimes the loan will be from a number of different lenders. You may also be charged different rates of interest from different lenders.
Things to Consider with Peer to Peer Loans
If you default on the loan the company may pass that debt onto a debt collection agency and your credit rating will be affected.