Normally, traditional banks are reluctant to give personal loans due to their high-risk nature. However, financial technology has completely changed the game.
For instance, companies such as Upstart, Funding circle, Prosper Marketplace, CircleBac Lending and Fintech are all innovative online loan platforms that compete with traditional loan services from banks or credit cards. It is interesting to see the many possibilities they have been able to create.
Nowadays, online personal loans are easily accessible through the many peer-to-peer lending (P2P lending) platforms available. P2P lending is equivalent to borrowing money from a friend or relative, only that you will be connected to lenders scattered globally and subscribed to the platform. It is hassle-free because the need to visit a physical bank is non-existent.
P2P lending has availed personal and business loans amounting to billions of dollars mainly due to the convenience factor. Moreover, less stringent rules contribute to the success of online loans.
How P2P lending works
The peer-to-peer lending marketplace simply connects lenders and borrowers by eliminating the protocols that banks impose in the middle. As a result, the platforms or their owners do not lend their own money but only facilitate the process.
Getting started is with taking of an online loan is easy. All you have to do is go online and shop for a lender, settle for the best and begin the registration process. Upload your details to enable lenders to verify your identity. As you wait, the lenders will process your credit score to determine your eligibility for the loan.
If you satisfy the minimum credit score, your loan will be listed, and you will get connected to a lender. At this point, you will have to wait for the lender to approve your loan, and wire the money to you electronically. It is advisable to repay your loan within the stipulated time for a good credit score. Also, it will help you build credit and be able to loan out even more money.
Online loans provide a suitable source of money especially when it is needed urgently. A P2P network of lenders or investors will give you their money, but for a fee. If you hit the financial rock bottom, and banks are not the option, P2P is the go-to platform. If you have never taken an online loan, or are reluctant, then read along and find out how exactly you can be able to do this.
Choose the right type of loans
A majority of P2P loan providers issue personal unsecured loans. For instance, you can borrow an appropriate amount of money to fulfil a particular legal purpose without the need for collateral. These loans are flexible because they are not bound to a particular purpose. You could choose to start a business, get a new car or for home improvements. Recently, some lenders have opted to give business loans. It is up to you to pick the best choice.
Maintain a great credit score
Money lenders are privy to risk, so they have to be wary of whom they can lend money to. Traditional banks and credit unions are strict because they demand a higher credit score in addition to security.
Many online loan providers use the FICO credit score to predict whether you are likely to repay your loan on time or not. P2P lending services need a FICO credit score of 650 to qualify. Some lenders give you a reprieve because they can still give you a loan even when your credit score is lower. The catch is you will have to pay more in interest rates.
To be able to access huge loans, be sure to be active in borrowing and paying on time, even if it is small amounts in order to boost your credit score.
Compare the costs of operation
Reputable online platforms charge low registration fees when you apply for a loan. Other lenders will entice you with quick payday loans with no charges at all. Be careful with these “free” types of loans because the annual interest rate can be in the triple digits, and the payment period unreasonably short.
Registration fees can be paid up front to the tune of 1% to 5% of the total loan applied for. In most cases, these charges will be added onto the repayable amount for a late payment. These costs are mostly cheap and affordable.
In comparison to using a credit card or traditional banks for loans, P2P lending is the best option. Banks have a lot of overhead costs which they recoup through interests. Online lenders do not have physical premises which pushes their charges down.
Look for legitimate platforms with proper identification processes
In the digital lending space, proper personal identification is paramount especially when it comes to financial issues. The borrower must provide personal details for verification. This practice is consistent to the Know Your Customer regulatory process that money lenders follow.
When using P2P lending platforms, you will be responsible for uploading your KYC documents such as a passport or a driver’s license. It is a necessary process because the lenders need to confirm your identity before they can approve your loan. It is a different practice than what you are used to with banks, but you get through it faster.
Get loans urgently
Online loans specialize in speed and convenience. You only need a decent internet connection to apply for loans from the comfort of your home. There is no more dressing up and running around to banks.
Shopping for loans online can be hectic, but once you point out the right online loan service, you will be ready for the application process. You will enjoy little waiting time to allow lenders to process your loan request. Upon approval, they will wire the money electronically to your account. This whole process can take less than a week with most reputable online lenders.
According to a report by PricewaterhouseCoopers, the online loan market in the US alone issued an approximated $5.5 billion in loans in 2014. By now, this number has soared off the roof not only in the U.S but also globally. There are many other P2P lending platforms that you can choose from other than the ones listed in this article, start your shopping today!