How to Get Peer-to-Peer Online Loans with Bad Credit
Peer to peer loans are a new type of online loans to get you money you need even on bad credit
I was working as a labor economist for the State of Iowa during the Great Recession. I saw first-hand how bad the recession was for people across the country, the double-digit unemployment and how banks shut everyone off from getting loans.
A decade later and the economy has rebounded but a lot of people are still shut out of the financial system. Credit scores have increased but banks still aren’t lending to a lot of people.
Peer lending, or p2p, has been around since before the financial crash but it’s become a critical piece of the loan market since. In this article, I’ll start by showing you how the peer to peer loan system works and then how to get the money you need even with bad credit. I’ll also reveal the p2p sites I’ve used and compare online lenders.
What is Peer to Peer Lending?
Peer to peer (p2p) lending is simply a website for individuals to request a loan from funding sources outside of banks. Lenders and p2p investors are made up of everyday people throughout the United States who are willing to assume a portion of the loan.
For example, say “John” wants to borrow $10,000 dollars. He fills out an application on a peer-to-peer site like Prosper. The application is seen by thousands of p2p investors, regular people that want to invest in this new type of lending.
Money is pooled from various individuals, each assuming a percentage of the loan. Say 20 people each agree to loan $500 at an interest rate of 14%, then Prosper combines the money and issues the loan. Individuals are then paid both interest and principal monthly based on interest rate and their percentage of the loan.
For the borrower, peer to peer lending works exactly like any other type of loan. You fill out an application and usually receive money in your bank account within a week. top installment loans in Colorado You make monthly payments on the loan, usually from three- to five-years. The loan and payments are reported on your credit to help increase your score.
How to Get a Peer-to-Peer Loan with Bad Credit
The reason why I say peer to peer lending is becoming the best way for people to get a loan is because it’s much easier to get than a traditional bank loan.
Banks and credit unions have strict lending policies so they can resell the loan to an investment broker. These policies lock out a lot of good people trying to get the money they need. Since peer-to-peer loans are directly between investors and borrowers, credit score requirements are much lower and relaxed.
That means more people can get a peer to peer loan than the old way of begging at the bank.
- Since p2p lending sites don’t have all the costs of running a bank, there are fewer loan fees with online loans.
- Since peer to peer lending is between investors and borrowers, interest rates are lower than at a bank where everyone (investment brokers, investors and the bank) want to make a profit.
- Peer to peer lending is completely online. No more running back and forth to the bank.
Getting an online loan through a peer to peer lending site is pretty easy. I’ve used three p2p loans over the last decade from several different websites.
- Click through to one of the peer-to-peer websites in the review below. I’ve used and recommend PersonalLoans