P2P Loans (Peer-to-Peer Lending) vs Payday Loans

P2P loan – an innovative lending option

P2P stands for “peer-to-peer” or “person-to-person”, which means “from equal to equal” or “from person to person”. That is, a P2P loan is an equal loan that works in a person–to-person pattern.

P2P platforms are an alternative to financial companies and investors. P2P lending is a mechanism for borrowing money between individuals within the framework of special online platforms. Online platforms accumulate all kinds of lenders and borrowers, giving them the opportunity to get acquainted and offer mutually beneficial terms. So, future lenders and borrowers register on such platforms – Internet resources or programs that are installed on smartphones, and conclude loan agreements there, agree on their terms, stipulate the amount of debt and repayment terms.

The first intermediary company operating within the framework of the concept appeared in the UK in 2005. Since the beginning of its activity, Zopa has provided loans in the amount of more than 278 million euros and acted as the largest P2P operator in the UK with a half-million customer base.

In the USA, this tool is also becoming a popular resource for business. In the States, P2P platforms have been operating since 2006. The American companies Prosper and LendingClub have since issued loans of more than $2 billion. International experts identify this type of loans as a rapidly developing trend and predict its growth in 2020.

The interests of the investor and the borrower

The reasons for issuing a loan on the p2p platform are easy to understand from the investor’s point of view: he is attracted by high profitability.

Now you may ask yourself, why do people take out a loan at a high interest rate at all? The borrower usually uses the p2p platform because the loan is not approved by the bank due to a low credit rating, or he cannot wait several weeks for the bank to review and approve his loan request. Therefore, the borrower accepts a loan with interest rates that are several times higher than the bank.

The task of p2p platforms is to unite online borrowers and lenders.

What are payday loans?

People are used to calling any borrowing of money a loan, although they have a classification and they are called differently: mortgages, consumer loans, overdraft, credit cards, car loans, etc. But most of all people are interested in: what is a payday loan and how to get it?

apply now button

Payday loans are a type of loan under which a small amount of money is transferred to the borrower for a short period of time. This type of loans is regulated by US legislation. The main feature of this type of lending is that you can get a small amount, usually from $100-$5,000. The loan term is from 1 to 30 (31) days. In other words, it is money for a quick solution of urgent financial issues.

A classic example when you need a payday loan. A person’s mobile phone breaks down, without which anyone feels shorthanded. And there are still 2 weeks left before the paycheck. It turns out that the money to buy a new gadget will appear only within 14 days. In such a situation, a payday loan is the simplest solution. It is issued on the same day, and the phone is bought immediately. And already the debt to the financial institution is paid from the deposited paycheck.

Advantages of payday loans

Anyone can apply. Online lenders satisfy more than 90% of applications, so any citizen has a chance to get a loan, regardless of his income level, credit score, job availability and other factors.

Simplified application procedure. The loan is issued quickly and without bureaucratic delays. The borrower does not need to collect certificates, it is enough to provide an ID and a mobile phone number. This is convenient in cases when money is needed urgently.

Lenders offer various promotions and discounts. The borrower can find a loan company offering a small loan on favorable terms.

Prolongation. The prolongation service is offered in almost all payday lending services. The extension of the loan agreement means that the borrower pays only the interest on the loan, and fines and penalties are not charged.

P2P vs payday loans

P2P loans are almost always mislead with payday loans: short-term, small-sized personal loans that are created to help out people cover obligations in case of money lack of financial delays.

There are many differences: P2P loans vs payday loans. The main difference is that P2P loans are financed by retail investors, while payday loans are generally financed directly by the payday lender.

Low-income borrowers are a target audience of payday lenders. They are offering smaller loans starting from $100, while P2P consumer lenders offer larger loans with longer repayment schedule. Peer-to-perr lenders also tend to conduct more thorough credit checks than payday lenders. It implies P2P loans may not be accessible to borrowers with bad credit score.

But the most important difference is the loan’s cost. P2P loans are oriented to provide favorable financial solutions to borrowers so that the investors financing the loans have the best possible chance of returning their principal and interest. Payday lenders make most of their money from high interest rates and penalties.

Category: General

Tags: cash advance, finance, P2P loans, payday loans