Peer To Peer Loans Or Bank Loans?

Peer to Peer Loans or Bank Loans

by David Tamplin on 31 Mar, 2014

If you are in the process of searching for an affordable loan, you’re probably limiting your search to banks and traditional financial institutions. However, there is an alternative, and it comes in the form of a peer to peer loan.

What is a peer to peer loan?

Peer to peer lending brings individual borrowers and lenders together without the need for a bank’s involvement. Whether you are searching for a personal loan or for business finance, this relatively new way to borrow means you can avoid much of the cost and hassle that is often associated with traditional loans. You will still be subject to the usual credit checks, but instead of your money coming from a bank, it will come from individual lenders who want better rates of interest than those offered by high street savings accounts.

Why peer to peer lending may be a better option than a bank loan

If you currently face a choice between securing finance through a traditional bank loan or with the help of a peer to peer loan service, there are some important factors to consider.

Quicker applications

Applying for a bank loan can take between two and three months in some cases. However, an online peer to peer service will often be able to have the money in your account within only a few days. Streamlined application processes and hundreds of lenders willing to do business mean costly delays are minimised.

Banks are often complex institutions, and several layers of administration could stand between you and the cash you need. Particularly after the banking crisis of 2008, banks are reticent about lending cash unless a long list of qualifying criteria are met – which can add weeks to the loan application process.

Lower interest rates

If you have a good record of repaying your debt, and you can demonstrate your ability to keep up with your loan repayments, peer to peer services can offer some low rate loans that you might struggle to find with mainstream banks. They can do this because they simply don’t have the overheads that major banks do. So you get an affordable loan at a competitive rate, and the lender gets a rate of interest that far exceeds those offered by most savings accounts.

More flexible repayment terms

Banks usually have a rigid approach to repayments and early settlements. Even if you are forced to pay a higher interest rate than you’d like with a peer to peer loan, you could still pay less for your credit than you would by lending from a bank. That is because p2p lending doesn’t usually impose punitive early settlement charges. You can pay off your loan as quickly as you like, or you can simply stick to the terms of the agreement – the choice is yours.

Options for people who have been refused in the past

Banks are now extremely strict when it comes to providing credit to individuals and businesses. They adopt a ‘yes or no’ policy when assessing applications and that may leave you struggling to find the loan you need if you don’t satisfy all the lender’s requirements.
Whether you have had problems in the past, you don’t have collateral or you can only provide a limited amount of information on your finances, using p2p services usually means the risk you pose to lenders will be graded. This gives investors the option to assess your application properly instead of adhering to pre-determined qualification criteria. You may have to pay a higher rate of interest as a result of the increased lending risk you pose, but that could be better than struggling on without the funds you need.

The increasing popularity of peer to peer loans is the most conclusive indication of just how this type of credit is helping ordinary people and businesses up and down the country. P2P lending offers a more flexible approach to consumer and business credit, and that’s why more and more people are turning away from traditional banks.

About the Author

David Tamplin


David Tamplin has been writing for Uk Money Market for 3 years and is the current editor of the site. He has an insurance background and achieved his ACII professional insurance exams in 1993.