Lending criteria have been tightened in recent years due to rising levels of default amongst existing customers. According to Renaud Laplanche of Lending Club: “As the financial crisis becomes deeper and more challenging, even for creditworthy clients, it’s hard to get funding.” Although the cost of peer-to-peer loans has also gone up, they represent a viable unsecured bank loan alternative. Rather than borrowing money directly from a bank, it is possible to get a low interest unsecured loan from a regular person for up to $25,000. Person-to-person loan lenders do perform credit scoring in order to categorise the risk that a customer poses.
Low Interest Unsecured Loans from a Person-to-Person Lender
The leading lenders in America are Prosper.com and Lending Club; Zopa.com meets the needs of UK customers. As Bao Ong of Market Watch stated: “As more peer-to-peer lending companies pop up, they offer varying approaches. Some help set up loans between family and friends; others cobble money from many lenders for a loan between strangers.” Unlike unsecured bank loans, peer-to-peer lenders use a number of small investors to meet the demand for a cash advance. Although only fair, good and excellent credit score applicants will be accepted so the risk is reduced, this approach to lending is designed to prevent a single lender from losing out completely.
Peer to Peer Loans Us a Tiered Interest Rate Structure
A person-to-person or unsecured bank loan applicant will need a history of good credit. The majority of lenders now use a tiered interest rate structure which means that people with the highest credit scores will get the lowest rate personal loans. Although an applicant with a fair credit rating may still receive approval, the cost of borrowing will be higher as the risk of default rises as a credit score falls. Fortunately, there are some steps that can be taken to quickly improve a credit score rating.
Fix Credit Before Applying for Unsecured Tenant Loans
It is in the best interests of the applicant to perform a degree of credit score repair before applying for a low APR loan from a bank or person-to-person lender. Always pay down debt and spread an unpaid credit card balance over several cards so that less than 30 percent of the allocated credit limit is used. It is also advisable to check for credit report errors and get these corrected in order to get approval for a low APR peer-to-peer or unsecured bank loan.
Unsecured Bank Loan vs Peer to Peer Loans
In practical terms, there is very little difference between a loan from a bank and a loan from a person-to-person lender. They each offer low APR loans of up $25,000 after performing credit scoring. Peer-to-peer loans are another option that comparison sites ignore when making a recommendation because they don’t earn commission from the sale. Before signing up a low interest rate unsecured loan, always check to see what Prosper.com, Lending Club and Zopa.com are offering customers.