Peer to peer lending for people with bad credit is an option to get an easy no hassle unsecured personal loan if your credit score is poor. The funding is done through an online social borrowing platform and does away with traditional banks. This means that there’s no waiting weeks to find out if you qualify or are approved, and an P2P website lender may deem your bad credit OK and offer you financing. This is an alternative method to banking.
With social borrowing, you have the option to be approved for credit funding ranging from $25 to $25,000. These smaller loans can be a benefit to people with poor credit who are experiencing a temporary hardship and do not need to take out a $3000 loan from a bank. And if you do not have good credit, your chances of getting an unsecured personal loan were low. Enter peer to peer lending bad credit.
How does a peer to peer lending platform work?
A borrower will list an amount they are trying to get, with the interest they want to pay and why they want the loan. A lender will then screen the applicant — the borrower. The borrower will have to have a compelling reason why they want the peer to peer lender to qualify them for the money but the determination will also be based on your creditworthiness.
Lenders will check your existing level of debt, too. Although all these checks are in place, a lender does have the option to lend small amounts of money to lots of borrowers, which reduces their risk when extending funds to people with poor or bad credit on peer to peer lending sites.
A lender can improve their investment, though, by funding poor credit borrowers because the interest rate will be slightly higher. This is to your advantage if you are looking for site that offer peer to peer lending bad credit.
Peer to peer lending companies
Each peer to peer lending company is a little different in terms of how they determine credit. Companies such as Prosper Marketplace use Experian to determine if you have a score above 640, which is the minimum for a first-time borrower. They also rate you based on a grading system.
Because everything is done on an online platform, you do not have to wait to get approved or wait weeks with a financial institution only to find you do not qualify. Once your information is posted on a peer to peer lender website, lenders browse through it and determine if they want to lend to you.
If a lender does decide to lend to the cash strapped borrower, the transaction is done through an ACH deposit, wire, check, or PayPal. A promissory note is drawn up, as well. This is done through the peer to peer lending site, which merely brings together borrowers and lenders.
The online website will, however, take a percentage of the interest paid back or charge a small fee for loan servicing because they do provide the platform and do the verification checks with credit agencies.
A value of peer to peer lending for bad credit is that many social borrowing websites report to credit bureaus. This is good for people trying to establish a credit history or repair their credit score.
Is social borrowing worth it with bad credit?
Person to person lending is worth it depending on circumstances. If you have a credit card that is, for instance, dragging you down each month with high interest, then it can be good to get a P2P lender loan at a lower interest rate, use that money to pay down the card, and pay back the peer to peer lender back at a lower interest rate.
A technique such as above will help you improve your credit because you will be paying your bills on time each month and will not be strapped for cash, needing to pay down a high interest credit card.
In another example, a P2P loan for a wedding may not be a very good idea, especially if you have a poor credit history and score. You may approve for the money, but will you be able to pay it back? Remember, a special occasion is just that and can intrude on daily living.
I hope this article about how peer to peer lending for people with bad credit works.