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What is a Person to Person Loan?

Person to person loans are generated between individuals and can be personal between friends or colleagues or can be brokered through various online sources or private companies. Money loaned is directly given from the lender to the borrower and is often easier to get than a loan from a bank in the current economic environment. These may be informal loans such as those between a parent and a child with loosely defined repayment schedules or simply with a more open ended “pay this back when you can arrangement.” However, there are also multiple sources from which one can obtain a more formal loan of this type. There are online resources that can help match lenders to borrowers so that those with a decent credit rating can find a source from which to borrow.

The Benefits of a Person to Person Loan

These loans are often unsecured meaning that no collateral such as a car title, future pay check or real estate property is used to obtain the loan. For those with a decent credit rating, there is a higher rate of approval on these loans than banks seem to be offering at the moment. Often there are fewer costs, if any associated with borrowing in this fashion. Many banks charge application and other fees that personal lenders do not charge. If the loan is informal, often there is little or no interest charged at all. These loans are significantly better than taking cash advances on a credit card because the interest rates will be much lower. These loans have been increasing in popularity because of banks reluctance to loan money by way of second mortgages or home equity lines of credit.

Things to Watch Out For

Not all types of person to person loans are the same. For those who cannot go to family or friends to secure a loan, finding a source of financing can seem daunting. One should try to stay clear of very high interest short term loans whenever possible. If, however, an emergency arises and a loan of this type needs to be taken be careful to go through a reputable company and to check which one offers the least fees and lowest interest rates. Also, always check out companies that are online to be sure that they are legitimate and trustworthy before giving them any personal information. Reputable lenders will want to see a credit report and will need personal information; scammers will also want to get these vital pieces of information from you so be careful to only deal with companies that are recognized as reputable and secure. Also, try not to over borrow. While these loans are at a lower interest rate than borrowing on a credit card would be, they are generally at higher rates than home equity loans or mortgages would be. Borrowing enough to remodel, to finance education, or do other worthy things is important but overdoing it often gets people into financial trouble. Be smart and be careful and person to person loans can work well for everyone involved.

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