With so many non-performing loans since the financial crisis of 2008, banks have become reluctant to grant them, especially personal ones or to small businesses. Other options? Many are considering the peer-to-peer lending market.
Obtaining a loan through P2P lending vs a bank
The application process through a bank is tedious. It involves submitting documents, bank statements, proof of assets, proof of liabilities etc. Approval or rejection of the loan can take anywhere between a few weeks to a few months, while your credit history is analyzed and documents processed. Applying for too many loans through a bank can also hurt your credit score, if rejected. Through peer-to-peer (P2P) lending, you can apply for as many loans as you like without affecting your credit score. Small businesses in need of a cash have also found it difficult to turn to banks as the latter are more inclined to offer loans to well established larger businesses with good income. Due to this, small businesses are now starting to discover the benefits of P2P lending.
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P2P lending catching on in Europe
Peer to peer lending in Europe has seen a 272% growth between 2012 and 2014. Peer lenders have contributed €274 million, which is huge testament to this new way of financing. P2P money lending websites are offering small business loans in the form of personal loans with less restrictions and fixed monthly repayments. The process of applying online is quick, and once approved, the funds are deposited in a matter of days. As Europe has the highest rates of NPLs (non-performing loans) noted at around 9% of GDP (end of 2014), P2P lending has been a welcoming platform often used to enable people to consolidate their debt with lower monthly repayment amounts at fixed rates.
Personal loans through P2P lending
We live in an environment where people generally don’t have large savings for home renovations, buying a new car, or going on much needed family holidays. Banks are charging high interest rates and offering lower rates in return on investment. This often leaves individuals feeling trapped with high monthly payments if indeed their loans are even approved, and low returns on investment. As P2P lending cuts out the middle man, fees can be kept lower with low rate loans, and are quicker and easier to obtain. Application is done online, approval within a day or two, and the money is in your account within a couple of days.
The US has been the leader in peer to peer lending so far, with Prosper who formed in 2006 followed by Lending Club soon after. In the UK the leaders in the market are Zopa that were founded in 2005 followed by Funding Circle in 2010 and Ratesetter in 2013. Since the financial crisis, more and more countries and individuals are looking positively at peer to peer lending, attracted by the benefits of low rate loans and fixed monthly repayments.
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