How Peer to Peer Lending Is Helping Students
Typically a loan is taken from financial institutions or banks, but some individuals also take loans from other individuals or family members. All these ways of borrowing are traditional ways, and now people look for alternative ways of lending money. For example, peer to peer lending is a great alternative to conventional lending. In this type of lending, you can take loans directly from the investors through online p2p platforms.
This alternative financing can be used in different situations in life, including college financing. If you have already exhausted your private and federal student loan options and still need funding to cover your college expenses, a p2p student loan can be a perfect option for you.
How Is P2p Student Loan Different From Standard Student Loans?
Traditional bank loans are administered by the government, a private lending company, a bank, or a college or university. In contrast, peer to peer student loans are taken directly from the investors. The investor can be an organisation or an individual that will act as a lender. A p2p student loan is highly beneficial for students who find it challenging to secure a loan from traditional financial institutions. Moreover, students may get a better interest rate through p2p student loans. Students can also borrow from more than one lender in order to collect the required amount for their educational funding.
How Does P2p Student Loan Work?
If you want to get a p2p student loan, you need to follow an application process just like a private student loan. The lenders also check your credit score so that they can find your eligibility. P2p platforms also require your personal information, details of your education and how you will use this loan. Sometimes your loan is approved quickly, and sometimes it takes time. Your loan is approved in less time when there are lenders who are willing to invest in student loans.
You can repay the loan amount electronically, and it is essential to make monthly repayments on time. Although you borrow from individuals and not banks, the late repayment can affect your credit score. You can build a good credit score by making payments on time, and usually, there are no early repayment charges. Furthermore, you can also save money on interest when you repay early.
As a student, you can find a lender easily with the help of peer to peer lending sites. These sites help you find the right lender and determine the interest rate, loan terms and handle all the processes from transferring funds to repayments.
There are several p2p platforms available in the UK. They all have different eligibility criteria and offer different interest rates. You should explore the market and make price comparisons to find a lender offering competitive rates.
You should keep in mind that not all the p2p lending platforms offer student loans, so you must check it before choosing a platform. And sometimes, a website restricts the location of the borrower and lender. So it is better to check all these things to avoid any inconvenience.
P2p Student Loan Application Process
It is better to understand the loan application process so that you can apply for a loan easily. In a typical scenario, a p2p student loan application has the following steps:
- You can make an online application on a p2p lending site, and it usually includes a credit check.
- The p2p platform rates your application according to its lending criteria. It helps them to determine the interest rate and terms. The platform offers you a proposal including all terms and conditions, and it is up to you to accept or reject. If it meets all your requirements, you can proceed further.
- You can add details to your loan application so that potential lenders can review it. These details include the amount you want to borrow, how you will use this money and your educational goals. By sharing this information, you can give lenders a reason why they should invest in your education.
- Once your loan application is approved, you can move forward. The p2p platform will handle the transaction of funds from investors into your bank account as well as monthly repayments.
Pros Of P2p Student Loan
It is always a good idea to understand the benefits and drawbacks before taking out a loan. Following are some benefits of a p2p student loan.
- You can get a loan at a low-interest rate because you are taking money from individuals and not from a bank or corporate entity. That is why there is no overhead cost.
- Peer to peer lending is personal compared to banks and government agencies. Lenders can choose a borrower, and this way, they can support students who have great ambitions to succeed in life.
- P2p lending platforms are very active and engaging and allow students and lenders to ask questions to know exactly what is going on in this lending world.
- It is easy to apply for a p2p student loan online, and loan applications are approved quickly compared to standard student loans.
Cons Of P2p Student Loan
Following are the drawbacks of p2p student loan:
- To get a loan at better rates, you must have a good credit score. The lower your credit score, the more interest rate you have to pay. In this case, a p2p student loan can be expensive for you.
- Although the personal information you provide to a p2p platform is secured, you almost have to sell yourself while explaining your needs to win over the investor. It can be uncomfortable for you if you do not want to share details of your personal life.
- Unlike government or bank student loans, p2p student loans do not provide an option to defer a loan or apply for student loan forgiveness.
- P2p loans are usually short term, and you have to repay the loan amount within 1 to 3 years. This timeframe may not be suitable for some students to pay back loan amounts along with interest.
Like all other financial products, the p2p student loan also has some benefits and drawbacks. However, if you want quick access to funds to overcome your educational expenses, it can be a perfect option.
