If you have allowed your credit card or personal debt get out of hand to such an extent that your credit has been negatively impacted, you may find it very difficult to get a debt consolidation loan from conventional lenders like banks or private companies. The peer-to-peer lending platforms can provide the opportunity to access funds from private lenders with different risk-taking profiles.
The Typical P2P Lending Process
If you want to take a debt consolidation loan, you can apply to one of the numerous online P2P platforms; the application forms are the same as that used by other lenders and typically ask for personal and financial information that will be used to check your identity, credit, and employment history for application acceptance. Individual lenders on the P2P platform can decide to extend you a loan at interest rates they choose depending on your risk category or you can invite bids from prospective lenders and accept the lowest one.
Advantages of P2P Loans
Less cost of borrowing: Even though the cost of the loan on a P2P platform will vary, typically, applicants will be able to get better rates than those offered by credit card issuers but which are higher than the rates of credit union and banks. Since the lending policies of banks and credit unions are usually far more stringent, P2P platforms are more viable. You can read a debt consolidation review to learn about the typical rates being charged on debt consolidation loans by various lenders.
Attractive option for lenders: The relatively-higher rates of interest that can be realized from borrowers make P2P lending quite attractive. Not only can lenders control their risk exposure but also realize ROIs that are better than returns from the stock markets without increasing their risk profiles too much. If they are willing to lend to riskier profiles, they can get APRs of as much as 36%.
Improve credit scores: When a borrower reduces his credit card debt with a P2P loan, it is taken as a positive signal by credit card bureaus who classify credit card debt and installment debt differently. With the credit card debt being reduced, the credit score of the borrower will get a significant boost.
Easier debt management: Borrowers with multiple credit card debt can consolidate all the loans with a single P2P loan. Consequently, they will be left with only a single loan to keep track of and a single monthly payment to service it. Debt monitoring becomes easier, and there is less chance of incurring late payment fines and missing out on the monthly payments.
The entire process of obtaining loans from P2P platforms is geared to be extremely quick. The loan application is painless and can be done in a matter of minutes, and it is possible for the loan to get extended and credited to your bank account in less than a week. Compare this with the typical processing time of several weeks taken by banks; it is very easy to see why P2P lending has become so popular.