Peer to Peer Loans: P2P loan guide for 2017


Peer to Peer Loans

There are many types of peer to peer loans that are available and we will cover in this peer-to-peer lending review.  They can be generally categorized into the categories that follow.  There may be other types of peer-to-peer loan you can get, and in some cases you don’t have to provide much information about what the money will be used for and instead the investors will rely more heavily on your financial information including your history.

Make sure that you get information and advice about P2P loans from a variety of sources in addition to this website.  Like any investment, a P2P loan needs to be a fit for your investment portfolio if you are going to invest, or the best fit as far as your funding needs if you are a potential borrower.

Peer to Peer Loans Types

There are three major types of Peer to Peer loans, each of which we dedicate a page to on this website.  These three types of peer-to-peer loans are all dependent on good credit, a reasonable reason (see below), and a willingness to look beyond traditional funding mechanisms.  Besides that, however, there are significant differences between the process and in many cases the type of person who has chosen to do the lending:

Peer to peer loans for business

Peer business loans provide the funding for a business, whether for a start-up, a small business expansion, or improvements in process. Peer to peer loans for business may have a more detailed application process since they may be seen as higher risk by investors who want to know why the business will be successful after this capital infusion. P2P loans for business may sometimes also involve some sort of equity transaction as well and may look a little like crowdfunding, a topic we explore at our crowdfunding website. Sometimes investors are asked for a new round of funding after the first round proves successful.

Peer to peer loans for personal reasons

Peer personal loans are perhaps the best known and most popular form of this type of transaction. In this case an individual applies for money from peer investors, and just like a more traditional personal loan she or he must give information about her or his financial history, the reason for the loan, employment history, etc. Credit scores and other relevant financial information are provided to the potential investors. Many investors in peer-to-peer loans for personal reasons choose to spread their investments over many loan requests, though some platforms are also designed to be a go between when family or friends want to make a loan to someone but do not want to have to get into enforcing the terms.

P2P loans for students

Peer loans for education are also increasingly popular, and as the name suggests they are used to help a student afford the costs of higher education including college and graduate school. A subset of peer-to-peer loans for education are those that are made to help someone afford job training or to learn a trade. Peer to peer loans for students often cover expenses after traditional loan options are exhausted or when traditional loans are not favorable after a certain point. This type of peer-to-peer loan may in some cases be mission motivated, where an investor has a particular type of student she or he likes to support, or it might merely be a choice of how the lender feels they will get the best payback.

These are the three major categories of P2P loan available today. Below we explore some of the specific reasons why people turn to P2P loans for personal reasons.

Peer to Peer Loans Reasons

The following are the major categories of P2P loans:

Debt consolidation peer-to-peer loans

This funding helps you take all of your debt and consolidate it into one monthly payment.  You can often get a P2P loan rate that is less than the average of all your debt.  Keep in mind that you will likely only be able to get a favorable debt consolidation loan if you have been making your payments and generally have good credit.  A peer-to-peer loan for debt consolidation is a great way to go but only if you have the resources to meet the terms of the peer-to-peer loans you get.

Home improvement P2P loans

This type of loan is a great way to get money to add to your home, make a major repair, or work on a major home improvement project.  Peer to peer loans for home improvement is quite popular for those who do not have enough equity to refinance their mortgage, or have such a favorable mortgage interest rate that they don’t want to go this route.  This choice is a good one for those who know that even as they are paying back the loan they have gained valuable home equity, but as with all the other peer-to-peer loans choices you need to apply with good credit.  A subset of this type of peer-to-peer loans are”Green” loans which can help a person install a renewable energy system in their home or business.

Short term or Bridge peer-to-peer loan

This type of P2P loan can help you get through a period where you need extra money but when you know the need will be short term.  Perhaps you or your partner is returning to school and for that period of time your household will need extra money.  Or maybe you just graduated from graduate school and need a few years to get on your feet in your new career.  Or perhaps you have increased short-term expenses for any reason.  P2P lending can fill the gap.

Adoption Peer to Peer Loans

This funding has always been popular given that the costs of adopting can be very high and there are investors who are quite motivated to invest in this area.  In addition, people who may be applying for this type of peer-to-peer loan may have excellent credit worthiness but just don’t have the high amount needed in one lump sum in order to adopt.  A related type of peer-to-peer loan is money for the birth of a baby – loans given to help with the initial costs that may be given to those who have not yet entered the workforce or who have a temporary dip in money available.

A military peer to peer loan

This type of P2P loan is a good way for a family to be able to do home improvements, cover moving costs, or otherwise afford what is necessary during times when one or both adults is serving in the military.  Many investors are quite motivated in this area and many military families find that there are too many obstacles during military involvement to conventional loans.

Engagement and wedding peer-to-peer loans

Lending that is given to couples who need money to buy engagement rings or to fund a wedding.  Some investors find that these loans are attractive because these young couples may have very promising financial futures and may actually be more likely to pay things off when they are able to combine their incomes and lower their expenses.  Some investors, of course, also choose this path because they like the feeling of investing in a family’s future.

Family lending with a P2P loan

This type of loan is increasingly popular.  Here a peer-to-peer loan platform provides a way for family and friends to fund your business or personal project and not to also have to play the middle man.  In other words, the website keeps track of things and puts pressure on the terms of repayment, allowing family and friends not to have to do this themselves.  This area of peer-to-peer loans may see growth as families see the upside of providing money this way.

There may be other types as well, but these are the major categories of peer-to-peer loan available today.

Peer to Peer Loans for Bad Credit

Peer to peer loans for bad credit applicants are available and may be your only choice if the bank or other traditional lender decides not to extend you a loan.  The P2P loan marketplace may be more forgiving of past financial challenges and more willing to extend a loan.  The reasons for this include the fact that many people investing in P2P loans are willing to take a deeper and less formulaic view of each application, and individual investors may be more tolerant of risk.  That said, peer-to-peer loans for bad credit come with significantly higher interest rates as you might expect.

As an investor you might choose to put your money into peer-to-peer loans for bad credit for several reasons.  First, you may be willing to take the risk because of the higher return.  You may have done the math and even if a certain percentage of your investments do default, the overall payback will still be strong.  Second, you may have a mission-driven reason for being willing to invest in a certain group such as military members or people with a similar background to you.  And finally, you may also have a mission driven reason to pursue a certain reason why the applicant is looking for a peer-to-peer loan for bad credit, such as their desire to install green energy systems or their hope to start a small business.  P2P loans for bad credit is not only available but may be the only viable option for many.

This basic overview of P2P loans should give you a start, but as we said at the beginning you should be sure to get your information about the possibility of investing or borrowing in the P2P loan arena.  A peer to peer loan may be exactly the right choice, but it is not something you should rush in to.  Let us and our other readers know how you did and what it was like if you are an investor or you received peer to peer loans!