A brief guide to P2P lending system and its pros and cons

Peer to Peer lending methods has redefined the face of investment and loans taking strategies. The P2P leading culture has been cultivated in 2005, but in this short span, it has become one of the competitive and considerable alternatives to financing industry. According to a survey by the year 2025, the P2P industry is expected to reach the amount of $ 150 billion or more.

The peer to peer lending or social lending is an alternative to exclude traditional loan giving or borrowing procedure where usually financial domains are involved as a middleman. This procedure allows a person to directly communicate with the other individual for loan lending.

Yet, in spite of tremendous popularity and hassle-free loan alternatives, the P2P lending method has been always a topic of debate because of its significant rewards and weaknesses. Like any other financial procedure, the P2P lending style might not offer all the desired benefits but, certainly, this method has some vivid options to consider.

Now, are you torn between the thought of whether to consider P2P lending services or not? To ease your life here, we offer detailed insight into all the pros and cons of Peer to Peer Lending method:

Initially, the P2P lending system was an option for people who were rejected by traditional financing banks or institutes. The system has been used to serve a specific category of people like students with loan debt at the comparatively low-interest rate. However, over the period, the P2P lending system has evolved to expand its reach and availing loans for numerous purposes. Thus, before jumping to the positive and negative aspect of P2P lending, first, you need to understand its working.

How P2P lending works?

In P2P lending system, a certain authenticated websites offer an online platform for investors and borrowers to connect directly. These online sites set specific rates along with defined term and conditions to allow the transactions.  Usually, these P2P lending sites facilitate a wide range of interest rate based on the applicant’s credit report. People with good records are offer benefited with low-interest rates compared to people with bad credit records.

To be eligible for P2P lending first the investor has to create an account with the service providing site where they will deposit cash that to be discrete for loans. The loan applicant approaches the site by offering his/her financial profile and both parties assess their risk category. The assessment help in defining the interest rates the borrower must be agreeing for. The applicant can be facilitating with numerous set of lending amounts at a different interest rate with separate return schemes and time bonds. On agreeing to desired offer the money is shortly transferred to the applicant’s account. The return payments and other formalities are handled by the website on behalf of the investor.

Pros and cons of P2P lending

Pros:

Quick and hassle-free processing:

Applying for a loan is quite simple and quick with P2P lending online sites. They instantly, respond to your request and let you know whether your loan is approved or rejected.

Moreover, a few websites avail you the loan amount within 24 hours after the verification.

Highly flexible:

As P2P is a direct platform where the investor has more freedom to choose their risk and investment return rates. They are well informed about the profile of the applicant and agreement.

The low-interest rate for the applicant:

Compare to other finance platforms P2P has lower interest rates annually. P2P sites offer flexibility to pick the interest rate plan and risk accordingly.

Transparency in communication:

As there is no middle man like a bank is involved there is direct interaction between the investor and the applicant. The investors are well informed about the borrowers’ details and purpose to take the loan.

Diversified platform:

P2P lending has expended quite well. It’s moderately easy to invest and applying for a loan for different purposes like medical emergency, automobile, mobile phone, business startup or more.

No effect on credit score:

Taking a loan from P2P platform will not affect the applicant’s credit record. Thus, it would be easy for them to apply for loans in conventional platforms in future.

Accessible source:

The platform is available online. Thus it’s easy to apply for a loan at the comfort of home. Even people with poor credit record or rejected from the bank can expect to get a loan.

Cons:

Fear of instability:

As P2P industry is relatively a new platform for finance businesses, it’s quite expected for both the lenders and applicant to develop a fear of instability. At times immature financial regulations and the weak controlling system might put both the parties at risk.

However, numerous top P2P Lending platforms are working to improve the customer experience and executing better financial regulation.

Long-time cash hold:

The cash Lending and returns are dependent on the loan agreement. Thus, it might take longer for the investor to get a quick return and might have to wait for a long period to have complete benefit.

No government security:

The P2P lending does not offer any cover from government end.

Risk of losing money:

As P2P lending is a flexible market where loan category is diverse.

Investing in high-risk loan deals in the hope of high-interest rates can put the investor at risk of losing all the money.

Conclusion

Peer to peer lending is an alternative as modern financial aid. Though, this method is quite naive to the world hence, it might need a few improvement and securities to ensure more strength and faith. However, P2P is undeniably making its place in the financial domain because of a low rate of loan denials, easy and hassle-free access and diverse loan and interest rate categories.

Crowd Reviewed is a financial site offering reviews of a wide variety of financial products avail the needy people with easy and quick loans. It has to be ensured that you assess the reviews of various P2P plateform.