Hey, Brother, Can You Spare A Dime? | P2P Lending, Peer to Peer Lending, People to People Lending

There are many ways to secure loans these days, but due to the sub-prime mortgage crisis, banks and other financial institutions have been much tighter on their guidelines to lend. It seems you need an almost perfect credit score these days to get a low interest rate. Now that this is the case, people are turning to payday loans and peer-to-peer lending for their needs. There are certainly differences in the two lending styles and the consumer must educate themselves to know which is best for them. Payday loans offer a distinct advantage because your credit score is not a factor, you can get several hundred dollars by showing identification and proof of income. The major downsides is that there is a limit to how much you can borrow, the time you receive to pay back your loan, and the interest rates charged.

Peer-to-peer lending, on the other hand, is a newer concept that relies on users to provide money to lend to other users. If you are seeking a better interest rate then available at a traditional financial institution, you may find help at one of the many peer-to-peer lending sites. These sites work similar to ebay were lenders vie for your business by offering the lowest interest rate. Many user put up small amounts at varying interest rates, when the lenders reach the total amount requested, the interest is averaged and if it is lower than your local bank, you may choose to take the offer.

In order to get this type of loan, most sites do require a better than average credit score and a low income to debt ratio, which is a distinct difference when compared to payday loans. Although default risk is there, people usually only put up small amounts, so a default usually doesn’t have a large affect on the lender. Defaults are low in peer-to-peer lending (compared with payday loans) due to the community feeling at these sites as lenders and borrowers understand the difficulty of obtaining loans in their favor and feel a certain camaraderie that is not present with large, corporate financial institutions.

The sub-prime mortgage crisis is only just now beginning to show it’s full effects in the the credit markets… Consumers are facing a credit crunch. Be aware of the risks and be capable of replaying your debts before taking on additional risk.

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