The presence of multiple loan options at the marketplace is both beneficial and confusing. People can choose a suitable loan according to their needs, but at the same time, they might confuse in choosing the right alternative among many. For instance, several people often baffle between peer to peer lending and payday loans. These are the two different sorts of loans, and most of the time, people not able to identify their difference.
In order to help you out from this confusion, people first need to understand about the peer to peer lending and payday loans, respectively.
Payday Loans – A Nice Alternative of Small Loans
Payday loan generally fall into the category of short term loans, provided by the direct lender. People used to take their advantages when they are in a financial crisis and there is an urgent need of funds. These loans allow them to pay back the repayments until the next payday. They eventually get the benefit of reasonable interest rate, which is not difficult to pay.
Peer to Peer Lending – Another Preferred Means for Emergency Borrowing
Peer to Peer lending is quite a different funding source. It does not involve any loan company, as the borrowers request for funds directly from an independent loan provider. The lender has the right to set the interest rates on the loans as well as the repayment schedule for the borrowers. However, in comparison to the payday loans, this lending process is quite risky because there is no name of regulated company is involved to feel borrowers secure.
What Advantages Payday Loans Have For the Borrowers?
Payday loans have the biggest advantage where the people with bad credit scores have the accessibility of borrowing funds. These are the short term loans and thus, there is no risk involved of losing the large funds. It is the reason why the lenders provide these loans to the bad credit borrowers. However, lenders do check the credit history of the borrowers, but not reject their applications. Apart from that, payday loans also include an unsecured feature where borrowers are eligible to apply in spite of not having collateral to secure the borrowed amount.
The Purpose of Choosing Peer to Peer (P2P) Lending
Peer to Peer or P2P lending is still a doubtful process among several people, but still they are popular. The main reason is that now people have an option of repaying the funds in instalments. Unlike payday loans, the interest rates here are fixed that will not put extra financial burden on the borrowers. In previous days, P2P lending had high rates of interest, but now the trend has changed.
People with good credit ratings find very easy to apply for Peer to Peer lending. The lender approves the applications of the borrowers only after checking their credit scores. Although, it might be a drawback for the people with poor credit records, as the lender does not want to lose their funds. But for others, this lending method has significant advantages for them.
In the nutshell, hope such comprehensive comparison between payday loans and peer to peer lending gives you a clear idea. Now, you may be in a position of choosing the right funding option for your financial issues.