Can you imagine your neighbor lending you money to renovate the bathrooms or the dining room of your house? Everything you need to know about loans between individuals.
Financing a renovation thanks to crowdlending
Can you imagine your neighbor lending you money to renovate the bathrooms or the dining room of your house? Well, this is, with certain nuances, the logic behind the loans between individuals that are granted through the so-called crowdlending platforms.
Very interesting alternative to conventional banking due to its online application process and its competitive price.
This is what private-to-private loans are like
Unlike banks, these platforms will not lend you the money directly, but will put you in contact with a portfolio of investors willing to grant you the credit you need to obtain profitability. The products granted through this method are called P2P or peer-to-peer loans and can be obtained by individuals to finance their private projects as well as by self-employed and companies to obtain liquidity for their businesses. Singapore Legal Money Lender has some very useful articles about P2P lending.
Requesting a loan through a crowdlending platform is very simple: you just have to register, fill in a form and send the relevant documentation. The platform administrators will analyze your application, assign you an interest rate according to your credit rating and, if you meet the requirements, publish your project on their website. From that moment on, the investors will be able to contribute the capital of the credit and, after reaching the desired amount, the money will be deposited in your current account.
Pros and cons of applying for a P2P loan
This simple application process is one of the great virtues of P2P loans, but it is not the only one. For example, with these products you can also finance the reform of your home at a very competitive price, since the minimum interest applied by the platforms is even lower than that of the banks. Currently, the minimum rate applied on these loans when they are used to finance private projects is around 6% APR.
However, it is important to note that the interest on P2P loans always depends on the solvency of the client. Thus, if your profile is good (i.e., if you have a good salary and no current debts), you will be able to finance your renovation at a good price. On the other hand, if you are paying other credits or your purchasing power is somewhat low, the interest on your credit will be higher.
In addition, when you ask for financing through a crowdlending platform, you should also keep in mind that you will be charged a commission for the management and study of your application. This surcharge may be higher or lower depending on the platform you go to, although it usually ranges between 1% and 3% of the capital of the credit granted.
P2P loans, on the other hand, do not have any linkage costs, since, as we have seen, you do not have to go through the bank to obtain them. In other words, to access these products it is not necessary to contract any other associated product such as insurance or cards, which means a significant saving of money in the medium and long term. This will also avoid you having to chain yourself to an entity throughout the life of the credit, because as it is well known, many banks force their customers to keep their salary deposited in their account in order to enjoy a competitive interest rate.