Banks can be frustrating. With the severe amount of regulation and policy involved in taking out a simple personal loan, you can feel overwhelmed. Add to that the fact that having someone comb through your financial information right in front of you can be embarrassing and akin to having a complete physical, and it’s no wonder that some people are hesitant to go to a bank when they need a personal loan. You truly feel like your value as a person is being judged while you wait to get a “yes” or a “no” from the loan officer.
What’s frustrating about the situation is that the bank isn’t loaning you its own money. It’s loaning you money from other people who have put money in the bank, and then only paying them a portion of the proceeds.
Peer to Peer Lending Removes the Bank from the Equation
There is a way to eliminate the bank as the “middle man” in the loan transaction. It’s called a “peer to peer” or P2P loan. In this type of loan, you connect directly with another person who has money that they may be willing to lend you.
How Rates Compare
Banks have a certain amount of operational overhead, not the least of which is the money they must pay to the people who deposit money in the first place. A Peer to Peer situation doesn’t have that overhead. What that means is that you’re likely to see lower rates.
A Competitive Marketplace
Another reason for those low rates is that potential lenders can, at some peer to peer lending services, actually bid on your personal loan. They can compete for your business by offering lower rates or better loan terms. This means that, in general, you’re more likely to wind up with a favorable situation all around.
Credit Rating Still Matters
Peer to peer lending services still check out your credit. They provide information about your credit situation, usually in the form of your credit score, to potential lenders. If your credit score sucks, you’re not likely to get a person to person loan any more than you are to get a traditional bank loan, although there are exceptions.