Failure to qualify for a loan may be so discouraging to many people especially when it is essential to meet pressing needs. You may have to seek alternative funding. Fortunately, you still have some options left.
Indeed, you can still qualify for other types of loans, even with a poor credit score. In this blog, we are going to focus on one loan type – peer to peer. Read on to learn more about these loans.
First thing first: Why borrow?
Loans have become an integral part of our life. People are faced with different conditions that necessitate borrowing.
If you asked why would people borrow, given the fact that there are interests to be paid for taking out loans, consider this: Not many have the luxury of having enough money to pay for living expenses. That’s just the fact of life in our society. I have interacted with friends who live paycheck to paycheck. Many try to look for help from friends and family members to make payments. This is a clear indication that they have borrowed too much than what they can afford.
Unfortunately, not many are financially literate, taking loans without understanding the real implications of those, especially when you fail to repay your loans. This has led them to poor credit score, which eventually hinder them to take any loans in the future.
So, what are the solutions for those who have bad credit ratings? Some lenders, such as A1 Credit, offer low-interest loans, and this can be very helpful. Such loans come in many forms, including peer to peer loans.
Enter Peer to Peer (P2P) Loans
This is not a new concept. If you have ever tried to borrow from informal sources such as family members, you have an idea of what peer to peer loans are. In peer to peer lending, borrowers are linked to lenders directly. As such, you will only be required to make monthly payments to the site, and the system will distribute the payments to them. Because lenders are more concerned about the proceeds on loan, they do not care about credit score and history.
In P2P lending, the interest rates are always fixed. And since there are various P2P lending platforms available, your options are abundant.
Let us then consider the types of peer to peer loans.
Types of peer to peer loans for people with low credit
The maximum amount one can borrow in most peer to peer sites is $40,000. A few can go beyond this amount. There three main types of these types of loans. Let us have a brief overview of each one of them.
1. Personal loans
These are the most common types of lending across all the peer to peer sites. They are very flexible and that why many people prefer them.
The lender of per to peer personal loans has fewer restrictions compared to traditional institutions such as banks. While credit score plays a significant role in conventional banks, in peer to peer loans emphasis is not put on credit score. This does not mean that the credit score is not essential. There is a perk you can enjoy when you’re having an excellent rating: You can borrow up to the maximum amount.
Several other benefits of peer to peer loans include fixed interest rates and long loan repayment period ( often goes to five years.) These mean you can quickly get out of debts.
Different sites offer personal loans. Lending Club is the greatest one and offers personal loans for various reasons, including debt consolidation, home remodeling, and auto loans. Another key player is Prosper and provides the same types of personal loans as a lending club. Avant is yet another lending site that process loans faster than the rest.
2. Business loans
It is challenging to be approved for a business loan by banks if you are a startup. Banks often lend to established businesses and not too small entrepreneurs. For this reason, many small entrepreneurs are turning to peer to peer loans.
Peer to peer business loans does not have complicated lending criteria like conventional bank loans. Usually, you may need significant documentation to prove your ability to repay a business loan in the bank. When it comes to peer to peer loans, the application process is quite simple.
3. Student loans
Peer to peer loans is also essential when it comes to student loans. While it is true that there are so many sources offering students loans, coming across one that refinances them is so difficult. There is two major peer to peer lenders of student loans SoFi and CommonBond. The only challenge is that you will be required to be income qualified when it comes to refinancing loans in peer to peer arrangements.
Conclusion
It is difficult to borrow from banks if you have lower credit. However, you can turn to peer to peer loans and borrow up to $40,000. The lenders are concerned with the returns more, and so a low credit cannot prevent you from getting approved for a loan.
When used correctly, P2P loans can help you in clearing your bad debts, getting your startup to grow quickly, or paying your education costs. That said, you need to consult your trusted financial advisors, so that you can choose the best route for your specific needs.