Debt and peer to peer personal loans get a bad name around the financial blogging community but they are really just financial tools.
Peer lending is just like any loan. There are advantages to using it or any type of debt just as well as drawbacks.
1. Peer lending is cheaper to originate than bank loans because there are no branch location costs. Some of these savings are passed through to borrowers in lower rates and some are passed to investors through higher return.
1. Rates on some p2p loans can get expensive. Since peer lenders loan to bad credit borrowers, they have to make up for higher default rates with higher interest rates.
2. Some borrowers assume that because a peer to peer loan is online, it isn’t like a traditional loan and doesn’t affect their credit score like a bank loan. Missing a peer loan payment is just as bad as missing a credit card payment.
Since online peer loans are personal unsecured loans, you can use them for any purpose. You don’t need to put up collateral like your house for the loan.