Going through life without taking out at least one loan is almost impossible for most individuals. Although this is not an issue in itself, the fact that some banks and other private lenders tend to increase the interest rates that they offer can make loans too expensive for some people.
This having been said, the many developments that the internet has seen in the past 20 years has led to the creation of a very large number of money lending platforms, many of which try to actively compete with traditional banks. Of all these platforms, the most popular ones are P2P lending websites.
Generally speaking, online lending platforms must obey the same laws and regulations as banks, but the fact that they operate entirely over the internet gives the companies behind them, and the borrowers, several advantages. However, it is difficult to say if borrowing money from a P2P platform is better than getting a loan from a bank. We’ve looked at both types of services and have analysed their advantages and disadvantages. Here is what you need to know:
Lower Costs and More Flexibility with P2P Lending Platforms
P2P online lending platforms have a very different internal structure than banks. Where banks own the money that they give out as loans, P2P lending websites only act as caretakers and monitors. This is due to the fact that these websites do not give out loans, but put borrowers and lenders in contact with one another.
The money for the loan comes from a lender that is usually another registered user on the website. If you, as a borrower want to take out a loan, you will have to submit several types of personal details, such as proof of address, proof of income, and a bank statement. Once you upload these details and send in your loan request, you will be entered into a database that only lenders can access. When a lender finds your requests and decides to give you the financing that you need, the website sets up the transaction and takes out a small commission.
It is important to mention the fact that loans from P2P platforms usually do not perform credit rating checks, making it easier for individuals with a problematic financial history to borrow money.
Banks Are Still as Reliable as Ever
On the other hand, banks are still as popular and as reliable as ever. Most of them have successfully expanded their services to their online environment. As a result, you can apply for a loan through the internet, however, you may still be required to go to your local bank in order to meet a representative and submit various documents.
The interest rates are stable from one year to another and all fees and charges that you may have to pay are disclosed from the start. The high degree of transparency makes banks a great choice if you want to take out a secured loan, a line of credit, or if you simply need to borrow a large amount of money at a decent interest rate.
Which One Offers More Advantages?
Both P2P lending platforms and banks offer great ways to borrow money, however, each of them caters to different types of individuals. If you need to borrow money as fast as possible and/or have a bad credit rating, then using a P2P platform will be the better choice. However, keep in mind that these websites have certain limits when it comes to how much money you can borrow and the term of the loan.
If you need to borrow a large amount of money or want to take out a secured loan, you will have to use a bank. Although you will have to pass a credit rating check, banks are able to give out larger loans that have considerably longer terms.