Skip the Banks! – Peer To Peer Lending

Person-to-person lending or peer-to-peer lending, abbreviated frequently as P2P lending, is a type of financial transaction which takes place directly between individuals or “peers” without going through a traditional financial institution, like a bank. P2P lending is for the most part a for-profit activity, there is interest charged so those offering the loan will make money off of the money they lent.

This differentiates from person-to-person charities, person-to-person philanthropy and crowd funding which create connections between donors and recipients of donations but the contributions do not charge interest or make a profit.

Lending money and supplies to friends, family and members of the community predates the official formation of financial institutions. However, the birth of its modern form is the result of by-product internet technologies, especially Web 2.0, and the development of the market niche. This was further boosted by the global economical crisis or recession which began in 2007. P2P lending platforms offered credit to individuals and businesses at the time when banks and other financial institutions were having fiscal difficulties.

A risk/probability assessment is done by the private lender to evaluate your income, expenses, and the likelihood that you will pay back the loan. Therefore, you will need to have proof of your debts and the payments that you have made on your bills. If you have fallen behind on payment for some debts, having a written explanation and how you plan to keep the problem from happening again will be important when you talk to the lender.

You’re probably familiar with the APR as a measure of interest paid on a loan. Credit card companies use it and you’ve also seen it printed on advertising for new cars. It’s a perfectly legitimate and helpful way to calculate interest on a long-term loan. That’s because it measures the amount of interest someone pays on a loan over the course of a year.

If the interest rate on your current debts is less than the interest rate on a personal loan will be, it may not be cost effective to get the personal loan for those debts. However, if you are seeking a personal loan for an emergency, you will need to calculate the interest into your budget as well as the principle of the loan and any hidden fees that are included in the loan.

Now, that’s a pretty high number, much more impressive than saying you’re paying $15 for a $100 loan. But the real problem with using the APR in terms of temporary loans is no one ever keeps a payday loan out for a whole year. Lending industry best practices and state regulations simply don’t permit it to happen.

There are many reputable private lenders who are currently assisting people who are getting back on track after the current depression, and finding the lender that will meet your needs and is focused on customer service will give you the assistance you need if you are fully prepared when you meet with them.

Harris Smith is a personal finance writer interested in home equity line of credit Don’t Miss Out! Debt Consolidation Consolidate Debt and Save!