Compare the best loans of South Africa and find the lowest rate
Getting involved in a loan with a bank has some great advantages but also, there may be some drawbacks. As you are leaving everything in hand of an entity, you’re charged some fees you could avoid. How? By taking another direction with a P2P (Peer to Peer lending). If you don’t know much about it, don’t worry because in this article you’ll get the information you need. I’ll refer to one of the best P2P lending sites in South Africa and how it works. Also, I’ll make reference to the risks and benefits of P2P.
What does Peer to Peer Lending mean?
In simple words, peer to peer lending means to borrow money from an investor instead of dealing with it through a bank or another lending company. In the following lines, you’ll find all the information you need about P2P lending loans expanded.
How does P2P lending work?
Among other aspects, loans are settled taking into account the borrower’s credit history. For those who don’t enjoy a high credit history may be a little difficult to get approved on a loan request. In addition, rates are decided by the entity and can, sometimes, get really high. As a consequence of this, the total cost of the loan increases. This is when peer to peer lending comes in as a fine alternative as, this is about going on with the contract but, directly with the investor. This means that instead of having a bank as intermediate, the borrower and the lender negotiate a rate that works for both parties.
What are the risks of peer to peer lending?
Referring to the risks peer to peer lending may present, we can easily note that as this type of borrowing money avoids working with specialized lending entities, the negotiation must be dealt with completely by the lender and the borrower. That is to say, the terms, quotes and rates are decided by the parties and, also, the compliance of such terms. As a consequence, in case of falling on one of those terms, there would probably not be a guarantee for any of the parties.
So, if you are thinking about get involved in a P2P lending, it is of paramount importance that you know who you’re working with. What you can do is to look for lending sites like, for example PeerFiN in South Africa. They offer lower rates to the borrower in exchange for collateral, which works as security for that money until is repaid. At the same time, it gives the lender certain calm that the money they invested is safe.
What is the interest rate on a P2P loan?
One of the reasons why peer to peer lending is getting more and more popular is that there’s high chances everyone gets what they are looking for, as much for the lender as for the borrower. What I mean by this is that, the borrowers can state the maximum rate they’ll agree to get and, the lenders decide whether to work with that borrower or not. But, as all parties involved share the platform, there will appear the lender who accepts that rate. What’s more, just because banks are not in charge of the transaction, the rate that both parties will get for sure will be better.
If you wonder how it is that a lending club makes money, making everything works smoothly, you’ll be surprised by the answer:
The method is as simple as charging fees not only to the borrowers but also, to the investors. In this way, they can gather enough money to be profitable for them but still, being possible for them to keep offering lower rates. The outcome of this can be divided in two as regards each party:
On one hand, the investor receives higher rates for the money lent and,
On the other hand, the borrower pays a lower rate for the loan.
What is a lending bank?
In contrast to Peer to Peer Lending Sites, there’s the lending bank, which is the lending company who lends money to their applicants. This entity makes profit out of the rates applicants pay for the service of borrowing money. Next, I’ll detail some factors you must keep an eye on before deciding to work with a bank.
Is it a bad idea to get a Personal Loan?
Getting involved in a loan contract is not something you can decide overnight. You must make sure you won’t fail on your payments and, you won’t incur on debt. So, if you are hesitating about taking a personal loan, watch closely at these following points before making a decision.
1. Banks will ask for certain requirements in order to be eligible for a loan. The most significant are related to employment and credit history. If you don’t have a regular income or, your credit history isn’t perfect, you don’t have high chances to be approved.
2. Rates tend to be higher with lending companies than with peer to peer sites.
3. A positive side of banks is that the parties can rely on the fulfilment of the terms settled. If there appears a problem, the entity will make the best to solve it.
4. On the other hand, P2P offers freedom. When we refer to the terms, rates and fees, we know all this is on the hands of both parties, which means the total cost of your loan will be lower.
5. Requirements are also simpler for peer to peer loans. If you don’t earn a salary high enough to apply with a bank, you can find an alternative in P2P.
To close, if you don’t feel comfortable when working with lending companies, peer to peer lending loans can be the solution you were waiting for. You have to know this is a practical way to work out monetary support getting, at the same time, the best outcome.