Peer-to-Peer loans (also called P2P) are not financed by banks and their custodians, but by individuals seeking higher incomes. Sometimes a P2P loan has a higher interest rate than a direct transfer to a bank or traditional lender.
Peer-to-Peer Loans South Africa: a Complete Guide
Think of P2P loans as if you are going to the market to borrow from someone or lend money to someone. There are no banks or brokers here. If you are thinking of an unusual way to get a loan, read to learn how to build a solid relationship with the best lenders.
What is a P2P loan?
To better answer this question, let's consider the characteristics of Peer-to-Peer loans in South Africa:
- Internet financing. P2P loans are mostly provided online. If you are looking for a loan or investing, you need to visit a peer-to-peer website.
- There are no banks. Traditional financial institutions do not participate here. This means that borrowers usually visit p2p sites where they can find loans that they cannot get from a bank. In turn, investors visit p2p sites to earn more money than in the bank offers.
- P2P platform. It is an intermediary or online platform that connects borrowers and investors using a series of instructions on an algorithm or computer program. The platform provides a guarantee to the lender, such as income, credit score, and other factors until the transaction is completed.
- Anonymous loans. All payments and withdrawals are made through the platform without direct contact between investors and borrowers.
- Loan charges and fees. Most such lenders charge a fee for a loan, brokerage, or repayment, usually between 1% and 5% of the loan amount.
- Other properties. Peer lending companies use low-cost Internet technology that does not require physical offices, such as banks. As a result, P2P loans tend to offer lower interest rates for lenders and higher returns for investors. Peer lending firms make a profit by paying a commission to people who use their services.
How Safe is it to Use P2P Lending Services?
Peer-to-peer home loans are slightly different from traditional online loan applications. You will want to know if it is safe to lend or borrow from strangers. As part of security, you can perform the following security checks:
- Additional security features include https and URLs: "secure" media and a personal block in the URL or address bar.
- Read online reviews from experts and people who have used the platform.
- As an investor, the platform offers a reserve fund, a guarantee of reimbursement in case of further payment.
How does an Online P2P Loan for Borrowers Work?
Usually,the process consists of four simple steps:
- Fill in the form. You should answer questions about your income, financial history, and details of the loan you need. This information is used to simplify credit verification.
- Get a credit score. The results of a low-interest loan test are used to calculate your credit score, which shows investors how much you risk. If you don't risk too much, the interest will be good, which means your application will be approved.
- Provide the necessary documents. They are issued through the p2p platform and serve as a loan guarantee. Documents include a proof of income and employment, as well as bank statements.
- Review and confirm. Your information and documents have been reviewed, and you may be asked to provide additional documents. After receiving the authorization, you sign the loan documents before the money is sent directly to your bank account. The whole process can take anywhere from 24 hours to 1 week.
How does an Online P2P Loan for Investors Work?
As an investor, you can diversify your investment in four simple steps:
- Open an online account. Choose a reliable company with the same credit rating and open an account.
- Deposit the money. Your investments will be broken down into small amounts that will be distributed among different borrowers.
- See borrower profiles. They show you the creditworthiness of the borrower so you can decide if you want to give your money.
- Collect monthly payments. The borrower pays a monthly amount that the peer loan company pays you.
Types of Peer-to-Peer Loans for South Africans
Depending on the lending website, there are credit products for different partners:
- Unsecured loans to individuals. Borrowers are not required to provide collateral. The amount of the installment plan and the loan amount depends on your credit rating. Unsecured personal loans can cover everything from debt consolidation to home renovations and vacations.
- Business loans. You can cover the costs of starting or expanding a small business. You can also improve cash flow and simplify business operations.
- Medical or healthcare loans. You can get a special loan that is used to pay medical bills.
- Student loans. If you need to finance your education and cannot find a traditional lender, your only option may be a P2P loan.
- Secured loans. You can get a car loan or a mortgage secured by the asset itself. By default, real estate is usually sold to pay off debt.
- Refinancing. You can replace a car loan or home loan with a P2P loan on optimal terms.