In the past few years, the number of peer to peer lending platforms has increased, so the loan types are also expanded. In the beginning, these platforms offered only personal loans, but now they are offering the loans that were once available through traditional lenders or banks. P2p lending has changed the process of lending and borrowing. Now there is no need for banks or any financial institutions. Borrowers and lenders can come to online platforms and find the best interest rate. In addition, with the evolution of Innovative Finance ISA (IFISA), investors can invest in peer to peer loans and earn tax-free interest.
Over time, it is becoming difficult for borrowers to secure loans from the banks due to strict criteria. Investors are also looking for alternative investments to earn high interests, and this alternative finance industry is offering benefits to both investors and borrowers. As a result, the p2p lending sector is growing rapidly. Here are the major types of loans that are currently available on leading p2p platforms.
Personal Loans
These are the most common loans provided by the peer to peer websites. Most individuals turn to p2p sites to get a personal loan. It is due to the flexibility that lenders offer. There are a few restrictions compared to traditional bank loans. You do not need to complete lengthy paperwork and get quick access to funds. On the other hand, you have to wait for weeks or even a month to get approval to get a loan from traditional lenders. The credit score is another factor. If you have a low credit score, it can be challenging for you to secure a loan from banks. While peer to peer lenders also offer loans to borrowers with below-average credit scores. However, your credit score has a significant impact on your interest rate. The lower the credit score, the more interest you have to pay.
You can use these personal loans for any purpose, such as settling a debt, paying utility bills, car repair, or home renovation. Usually, the interest rate of p2p loans is lower than bank loans. It is also a reason that borrowers are attracted to these loans. Another benefit of personal loans by peer to peer platforms is that these are unsecured, and you do not need to use any valuable asset as security against the loan.
Business Loans
Peer to peer lending platforms also offer loans to small and medium businesses. These loans can be secured or unsecured. Thus, p2p platforms are filling the business loans niche too. It is a good thing, as many banks advertise, they offer commercial loans, but they tend to have strict lending criteria and lengthy paperwork. As a result, it is difficult for businesses, especially startups and large businesses, to get a business loan through banks. But on the other hand, peer to peer lenders is offering equal benefits to businesses like other borrowers, such as easy application process, great credit facility, low-interest rates and quick turnaround.
Sometimes it is possible to get a loan from p2p platforms that seem impossible to secure from traditional financing sources. The loan amount and the interest rate can vary from platform to platform. You can use this loan to expand your business, purchase new equipment or fulfil business capital problems. Most platforms do not require collateral. Instead, you have to provide a personal guarantee.
Auto Loans
It is a type of loan that is not common among peer to peer platforms, or we can say that it is something unofficial for these platforms. Some platforms offer auto loans which mean you can take out to purchase or refinance a car. But this loan is not officially termed a car loan. The rate of auto loans can be higher than those that you can obtain from banks or conventional lenders. But there is a benefit of taking such a loan through p2p platforms that your loan is not secured against your car. Moreover, you have the freedom to use your car to generate income. You can use it for business purposes or to commute to your job.
In addition, these loans are for a shorter period compared to bank loans, so you have to pay less interest rate, and you can repay the loan amount early without paying any early repayment charges.
Property Loans
In some recent years, peer to peer platforms have moved into property lending to offer ease to their users. It is very difficult for individuals to secure a mortgage loan as it includes a complicated process. It can take several weeks to complete the mortgage application and approval process. By seeing the increasing demand for property loans, p2p platforms started offering these loans to individuals as well as limited companies. Such loans are also known as bridging loans, and they are used to bridge the financial gap until you secure long term funds.
It is a quick source of funding, and you can use it to purchase a property, renovate or refurbish a property or for any other legal purpose. It is a secured type of loan, and you have to use the commercial or residential property as a security against the loan. The platform uses third party professionals for the valuation of the property. If your property is in a prime location and is in good condition, you can get a loan at the cheapest rate. Most frequently, these loans are used to complete the purchase of property before the sale of the existing one.
Other than these main types of loans, peer to peer lending UK platforms also offer student loans, medical loans, and bad debt loans. There are dozens of p2p platforms present in the UK offering different types of loans. You have to do research and shop around to find the right product according to your requirements. Moreover, it would be best if you made a price comparison to unveil the best loan deals and secure a loan at the best affordable rates.
