January 20, 2019
In recent times, there has been an alternative to traditional institutions like banks and credit unions. One of these alternatives is peer to peer lending platforms such as lending club and prosper work. This type of platform is particularly beneficial to those individuals with bad credit and may be unable to approach the bank for a loan. In this article, we would be looking at the main difference between lending clubs and banks especially as it relates to those with bad credit issues so that you can choose which one is right for you.
There are two types of loan that can be obtained from banks: secured and unsecured loan. An unsecured loan is usually for small borrowers, in this case, a fixed sum is given to the borrower and the loan is paid back over an agreed term, typically up to five years. The interest rate is fixed once the loan agreement has been signed. On the other hand, a secured loan is usually for larger for larger amounts. This is the reason it is usually secured to an asset. Secured loans are also payable over a fixed period of time and at a fixed interest rate. The main difference between a secured and unsecured loan is that you stand to lose your ‘asset’ if you fail to make repayments.
In some ways, lending clubs are not all that different from a bank. This is because you can borrow a fixed amount of money over a fixed term and at a fixed interest rate. However, unlike banks the money from lending clubs from your peers. Lending clubs have fewer overheads; this allows them to offer better terms and lower interest rates. This is a better deal for lenders as they will be able to enjoy better interest rates and tax-free interest if you decide to move your earnings into an Innovative Finance ISA. For those with bad credit issues, this can be a solid option. Learn more.
Lending Clubs vs. Bank Loans
In a lot of ways, lending clubs are better than bank loans. This is because they are more flexible and also offer better rates. For instance, lending clubs allow you to make overpayments or pay off the balance of your loan early; this allows you to save on interest. This is not the case with secured and unsecured loans in most instances. Payments are usually fixed and although you are allowed to pay back your loan early, you may have to pay a penalty in the form of interest. This is all well and good but may not be suitable for people with bad credit issues.
Approval time for loans from lending clubs is usually very fast. This is because a strong trust has been built among borrowers and investors which help investors to support borrowers with confidence. These lending clubs endeavor to fund loans at the earliest because of the strong partnership that has been built over time with investors. This is unlike what you would get with a bank that has a long approval process before you can get the loan eventually. Check out this site: https://www.trusttwo.co.uk/borrowing-from-us/advantages-of-a-trusttwo-guarantor-loan