Peer to peer (P2P) lending eliminates financial institutions and providers of payday loans, enabling one individual to borrow directly from another. For some people, this is the answer to loans bank provided for which they do not qualify or that feature high interest rates.
P2P lending sites match borrowers to lenders in a move to streamline financing.
Even though the base rate has been at a record low for these past two years, some banks still charge huge rates for loans and credit cards. On a P2P lending Web site, borrowers can find reasonable rates. This type of lending allows them to stop lining the pockets of lending institutions that already make a great deal of money from consumers.
In the UK, Zopa is the original place for P2P lending. Since starting six years ago, it has arranged more than £110 million in loans. Zopa boasts that its rates are consistently lower than even the best rate offered by a bank. Borrowers submit to a complete underwriting process prior to being informed of their interest rate.
This selective site rejects approximately 50 percent of applicants.
A newcomer on the P2P lending scene, YES-Secure lends to young borrowers and others with less than stellar credit scores. This comes at a price, as these loans APR are higher than Zopa. A three-year loan features a rate of about 14.5 percent.
For each approved loan, a £80 arrangement fee is added to the overall amount borrowed.
Like YES-Secure, RateSetter was established in 2010. Only the prime borrower market will be approved for loans through this site. About 12 percent of applicants are approved and rates vary between 6.8 and 12.2 percent. Borrowers can select form a fixed rate loan that features fixed monthly repayments or a rolling loan featuring a minimum monthly repayment amount.