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A Complete Guide to Peer to Peer Loans

Peer-to-peer lending provides you with a way to borrow money without heading to traditional routes and going to financial institutions and banks. You may have heard about it but do not know how it works and whether it is a better funding source or not. When it comes to taking out p2p loans, it is essential to understand what you are committing and what will be the benefits and risks of borrowing through a peer-to-peer site. Although these websites offer you to take a loan without involving any bank, you still have to pass through a credit check. Some restrictions may be more strict than the standard bank loans. Another vital thing to consider is the competitive interest rate. It is beneficial to compare different loan options before making a final decision.  

Peer To Peer Loans Explained  

Peer-to-peer loans are more like unsecured personal loans but what makes them different is that you borrow directly from an individual or group of investors instead of going to a financial institution. We can say that p2p platforms are matchmakers pairing up potential borrowers with those who want to lend and earn high returns on investment. In addition, these platforms set interest rates that are suitable for both investors and borrowers. 

P2p platforms offer flexibility in types of loans and interest rates. You can take out different types of loans, including personal, business, property or bridging loans. Even individuals who have a low credit score can get a peer to peer lending, but they have to pay a high-interest rate. Investors who are ready to take a risk and want to earn high-interest rates can invest money in such loans. On the other hand, borrowers with high credit scores and pass-through affordability checks can get loans at lower rates.

It means that the interest rate of p2p loans depends on the credit score of borrowers. 

How To Get A P2p Loan?  

Peer to peer platforms offer their services online and do not have any branches. It means you are not able to make loan applications in person. Instead, you have to apply for a loan online after choosing a platform. Along with the loan application, you have to tell which type of loan you want to borrow, how much money you want to take out, and how long. Other than that, answer some necessary questions about your personal circumstances, such as your credit history and proof of income.  

All the platforms have their own eligibility criteria and lending rules. Generally, you must be of age 18 or above to apply for a loan. In addition, platforms ask about your proof of income and proof that you have been a UK resident for many years. 

Are P2p Loans A Good Idea?   

One of the most significant advantages of peer-to-peer loans is that they offer lower interest rates compared to loans from mainstream lenders and banks. It is because all the p2p platforms operate online and have interest only in and have low operational costs. As a result, borrowers can reduce their borrowing costs by getting a low annual percentage rate (APR).

All the reputable and well-known peer-to-peer lenders in the UK offer flexible repayment terms to meet the needs of borrowers. Most of them do not charge early repayment fees, and it means you can repay early and save some money in terms of interest. Peer to peer platforms carries out credit checks to lend in a safe manner. However, the eligibility criteria and screening process are less strict compared to the traditional lenders and banks. 

In the beginning, p2p platforms offered only personal loans, but now you can take out loans for business cash flow needs and bridging finance to purchase or renovate a property. However, before taking a loan, you must take the time to understand the process and ensure that you are comfortable with borrowing through these digital platforms. 

In addition, check and understand the terms and conditions of the platform to avoid any inconvenience later. For example, when you fail to repay on time or default on loan, you have to pay penalties like standard bank loans. Other than late repayment charges, these late and missed repayments negatively impact your credit score. Furthermore, along with the interest rate, p2p platforms charge fees from borrowers and investors to run their businesses. These charges add up to your borrowing cost and can make it expensive to take out a p2p loan. 

Peer to Peer Loans for bad Credit 

Although peer to peer platforms offer loans to those who have bad credits, do not take it as an easy option. Many platforms have more strict criteria than banks to keep the number of defaults to a minimum. Keep in mind that when you apply for a p2p loan, you are treated in the same way as for high street bank loans. You have to pass through the platform’s credit check and screening process. You can get better deals and interest rates when you have a good credit score. You can get a p2p loan with a bad credit score, but the lower the credit score, the more interest you have to pay. If you want to get a loan at a competitive rate, you should work to improve your crest score.   

Is it safe to Take out P2p Loans?

Peer-to-peer loans usually do not have any risk for borrowers. However, you should always research and shop to find a well-reputed and FCA-authorised lender and enjoy a smooth borrowing process. As a borrower, you do not need to worry about risks, but you should understand the terms and conditions and not borrow more than your need. However, investors have a credit risk when investing in p2p loans because the Financial Services Compensation Scheme does not protect their investment. 


Peer-to-peer loans can be an excellent alternative to traditional loans as you can get quick access to funds at a low-interest rate. You can get loans to fulfill personal financial needs, to overcome business cash flow needs, or as a property investor in the form of p2p bridging loans. There is no need to go to a bank or complete lengthy paperwork. With the increasing popularity of p2p loans, many platforms are also increasing, making it challenging to choose the right platform. In addition, the interest rate and loan terms vary from platform to platform. If you do not have time to shop around, you can use online comparison sites to find a platform offering p2p loans at the best rates.

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