The constant digital services development that has been around for the last two decades has led to the creation of a large number of online lending platforms. These are regulated by the government, however, they have different functional structures and cater to the needs of different individuals. Although all the lending services that are currently online are safe to use from a legal point of view, some come with greater risks than others.
This having been said, our financial experts have analysed the major types of online lending platforms, in order to establish their advantages and disadvantages, as well as to determine what type of individuals would benefit from them the most. Here is what you need to know if you want to borrow money online:
Peer to Peer Lending Platforms Can Be Useful in the Long Run
One of the most popular types of online money lending formats is the P2P lending platform. These websites are extremely different from banks in the sense that they do not actually give you a loan. Instead, these platforms simply put borrowers and lenders in touch with one another. Although a P2P lending platform does charge both the lender and the borrower for the administration services of the loan, it does not play any other part in the deal.
P2P lending platforms are often used by individuals who have a low credit rating due to the fact that the deals are not reported to credit registries. Furthermore, most websites will not even perform a credit rating check, which means that you will only have to provide a minimal amount of paperwork as part of your loan request. In most cases, individuals have to provide proof of address, and proof of income. If you intend to use one of these platforms, keep in mind that you will need a bank account in order to receive the money.
As far as safety goes, P2P lending platforms are easy to use, they offer a lot of transparency when it comes to the terms and conditions of the deal and most loans are unsecured, so the risk is minimal.
Online Lending Companies Are the New Banks
Online lending companies function very similarly to traditional banks. They are private lenders that offer a wide variety of loans, many of which mirror the terms and conditions offered by real-world banks. This having been said, there is one important advantage that sets these companies apart, namely the speed with which they work.
Getting a loan from an online lending company can be considerably faster than if you were to go to a bank, mostly due to the fact that your credit rating will not be checked. In most cases, you will simply have to provide the company with proof of address and proof of income, after which you will receive the money in under 24 hours.
The main risk of using online lending companies is the fact that they attach very high interest rates to their loans. Even if you borrow as little as £1,000, you may end up having to pay an additional £200 as interest, fees, and various charges.
Crowdfunding Websites Can Help You Get Your Business Going
The third online lending option is crowdfunding. Platforms that offer this service essentially allow users to finance various ideas presented by entrepreneurs as well as individuals who have never owned a business before. Crowdfunding is not a loan, but a way to attract investors. The individuals that back up your product or company will not expect their money back. Instead, you will have to send them products or services, provided that you reach your financial goal.
There are no risks attached to crowdfunding. If you do not raise enough money to reach your goal, all the money gets returned before it reaches you and you will have no responsibility towards your backers. However, if your project or company is successfully crowdfunded, you will be obligated to send your backers the items that they were promised.
Which Is the Safest to Use?
Overall, crowdfunding is the safest way to get the funding that you need, however, it is also restrictive. Most people will not agree to fund your project or idea unless they know that they’ll get their money’s worth.
If you need to take out a loan that you can use for anything you might want, using a peer to peer platform may be the better choice. The interest rates are small, you can get a loan even if you have a poor credit rating and no collateral is needed.