Peer to Peer Lending: Advantages it brings and Drawbacks

For those who want to get instant loans and don’t want to deal with the trite procedures of the government, peer to peer lending has been a god sent.

That being said, it’s a new form of lending whose procedure is similar to crowd-funding. Thus, as a concept, not many are familiar with it.

However, with time, and dispensation of many P2P licenses, it seems that people are ready to accept this unconventional form of money lending. But, if you’re  an aspirant of this license, you must have a clear and honest picture of the advantages and drawbacks of Peer to peer lending.

Advantages of peer to peer landing

The advantages of this form of lending range from competitive interest rates and flexible terms to convenient online application filing.

1. It’s a fast and convenient option for both lenders and borrowers

The P2P lending platforms, courtesy of transacting every little detail online make the process of application filing quickly and without any hassle. Such a factor helps the borrowers with quick way to access funds at an interest rate that’s quite desirable.

2. Access to lower interest rates

the lenders that create a platform on a P2P lending platform range from large businessmen and small financial savants looking for a small and passive income. Thus, a borrower can gain access to all kinds of interest rates to chose from.

3. No additional documentation requirements

The borrowers and lenders have to provide certain documents at the time of registration. Thus, when it’s time for the P2P lending platform to initiate the loan transaction, no further details are needed. All the information required is present right within the portal itself – preventing any last minute rush by the borrower to find the right requisite documents.

4. No human intermediaries

Lack of human intervention is the primary reason the loan procedure on the P2P lending platform is faster. Furthermore, the lack of an intermediary prevents the stoppage of any transaction. Once the transaction is approved – which generally is in minutes- the loan amount is transferred.

5. No collateral required

Borrowers will find it quite easy to obtain loans from a P2P lending platform because of no collateral requirement. As no borrower will be compelled to tie his assets as collateral for the loans, he can freely access the amount he wants.

Disadvantages of P2P Lending Platform

A P2P lending platform is quite new, and thus, the regulations surrounding it are not well defined. It has caused severe distrust among the lenders and borrowers in recent years as more of its’ disadvantages are appearing to the surface.

1. Passing credit check is important

While the complications of traditional banking is removed, the required assessment of loaning process is here to stay. No user can just register and start borrowing money. They have to go through an assessment of their credit history. Read More: SACFA Approval

2. Application fee is required

A P2P lending platform has to earn somehow. And thus, it charges the borrowers an application fee before letting them obtain the loan amount from the lender. It’s one form of intermediation that although legal, is often frowned upon by the borrowers.

3. Risk of losing the amount

The lender lends the money to the borrower based on the personal trust that he develops with them. It poses a certain amount of risk as the borrower can refuse to pay back with interest once the transaction is complete. In those circumstances, the P2P lending platform has to place an insurance module that cover a portion of the money the lender lent the borrower.

Conclusion

Peer to peer lending has gave the borrowers a new way to access funds. It’s fast, convenient and lacks the regulatory complications of traditional banks.

However, it has traded off risk to maintain these three factors. Thus, take note of these points carefully when you decide to go ahead and apply for the P2P lending license.

Other Related License: Insurance Web Aggregator License

Peer to Peer Lending: advantages and disadvantages. This article details the pros and cons of P2P lending. For further details, contact Registrationwala.