How Peer to Peer Loans Work
Have you ever thought about how you can use your property to make some extra money? Maybe you have sold that bike that has been in the basement for far too long or rented out the place while you were on vacation. If you have, then you have used the same business model that some of the world’s largest companies use. The model is called peer to peer, or P2P, and now it has entered the loan market. Here’s everything you need to know about peer to peer loans.
What is the P2P model?
P2P is a business model that involves private individuals sharing personal property for compensation. You have probably both encountered and used P2P without being aware of it – it occurs in a number of different industries. Some examples of well-known companies are Blocket, AirBnB and Uber.
What are P2P loans?
A P2P loan is a form of loan that means that individuals borrow from each other instead of borrowing from companies. P2P loans are also called peer to peer loans, person to person loans, crowdlending and marketplace lending. The loan form has emerged as an alternative to traditional loans so that the parties meet on more equal terms. When you borrow from a bank, you may have to pay different fees and fulfill specific conditions for the bank to handle the loan. The purpose of P2P loans, when you borrow from another private individual, is to avoid this.
How does P2P loan work for me who wants to borrow?
You apply for P2P loans through various brokerage companies online. The brokerage company takes a credit report on you and determines the interest you will pay for the loan. The company then connects you with one or more investors who are willing to lend money. What determines how quickly you get the money is how long it takes for the company to find investors. Sometimes it can take several weeks if it is about larger sums, other times it can go much faster. Something that is good to know is that it can be difficult to get a P2P loan granted if you have a debt with Kronofogden. That’s because the brokerage company is trying to make sure you can pay back because the P2P loan is a unsecured loan.
Why should I invest in P2P loans?
There are many benefits to investing in P2P loans. It is seen as a safer alternative than equities and provides a monthly return that contributes to a return on interest rate effect. As a lender, you decide for yourself how much you want to invest, how much risk you want to take and when you want to withdraw. You can invest in private loans with low interest rates or high interest credits – hopefully the return will be thereafter. But as with all investments, there is a certain risk that you will not get back the money you have invested. Be sure to place your money with multiple borrowers to spread the risk.