Most of us turn to our local banks whenever we need money. Bank loans have been used by consumers for many centuries to pay for a new car, buy a house, or even take an exotic holiday. However, today a bank loan is not the only option. It is not even the best available option. Crowdlending has become rapidly popular and the best alternative to traditional banks for consumers who are looking for personal loans, business loans, or property loans.
Peer to peer lending platform matches borrowers with lenders, therefore cutting out the middle man.
Both banks and P2P lending have their advantages and disadvantages. In this post, we are going to highlight how crowdlending loans edge out the bank and traditional loans.
Peer to Peer Lending Loans
Peer to peer or P2P lending or crowd lending is an alternative to borrowing from a traditional bank. The most common types of loans offered in peer to peer lending are usually consumer loans, business loans, and real estate loans.
The peer to peer part in this system is that lenders decide whether they want to fund your loan.
Nearly all of the peer to peer loans are provided via an online platform. Borrowers can visit a platform that has a better interest rate and sign up for the loan.
Peer to peer lending gets rid of the middleman and allows both the borrower and lenders to interact directly.
The whole process of borrowing money and repaying it takes place online and typically within a very short time. Borrowers can obtain a loan within a few days depending on the size of the loan.
Banks offer a traditional form of lending, which is usually in the form of personal loans. Borrowers who are in good standing and have decent credit history may benefit from bank loans in terms of the competitive interest rates.
Users can borrow loans for such things as debt consolidation, wedding expenses, home improvements, vacation, or unforeseen medical bills. These types of loans are usually unsecured and borrowers are not required to provide collateral.
If you need a loan through the traditional form, you will have to apply it from a bank or a credit union. Then the bank or credit union will ask for documents and information to begin the underwriting of the loan. Some of the documents that you may be asked to present are your monthly expenses and annual salary. The bank will then check your credit score, which will determine how much you can borrow if you qualify, as well as the terms.
There are two types of bank loans
- Unsecured loan; which is usually small amounts and you can borrow a fixed amount and repay it over an agreed period of time, usually up to five years. The interest is also fixed.
- Secured loan; this is usually large sums of money and that is why the need to secure it to an asset. Secured bank loans are usually payable over a fixed term and at a fixed interest rate.
P2P vs Bank Loans
In many ways, crowd lending loans trump bank loans in that they provide better interest rates and they are more flexible. For instance, taking a loan from a p2p platform, you are allowed to make over payments or repay the loan early, thus saving interest. In most cases, this may not be possible with an unsecured or secured bank loan because the payment is fixed and while you can still settle the loan early than the terms provided, you may have to pay a penalty, which is usually interest.
Peer to peer loans have quick turnaround time for approval than banks and you may even be able to get good terms if you don’t have a decent credit score.