Personal Loan is a multipurpose loan which can be used for meeting various immediate financial needs like education, marriage, health expenses, travel etc. Being collateral free in nature, it increases the advantage of quick loan sanction.
The advent of online financial businesses has seen the emergence of a new lending option known as peer-to-peer (P2P) lending. P2P lending is a direct lending alternative available to individuals or
small businesses without any presence of an intermediary, like a financial institution. Such lending is mostly done via an online platform which equate lenders with prospective borrowers. Though P2P lending offers both secured and
unsecured loans, still mostly they are personal loans.
So, does this mean that P2P lending scores over the traditional personal loans grantedby financial institutions? Let’s see which type of credit is a better option.
6 Advantages of Personal Loan Over Peer-to-Peer Lending
Personal loans might be a better choice over the newer P2P lending options due to key advantages as stated below:
1 Flexibility of Use
One loan sufficing a variety of needs, what else does a borrower want! A personal loan is not limited to fulfil a particular financial purpose. It can be flexibly used to cover different financial needs at the same time. P2P lending comes with an application fee which results in increasing the cost of borrowing for the loan seekers.
2 High Borrowing Limit
A borrower can borrow any amount of a personal loan within the minimum and maximum cap decided by the financial institutions. Higher income or a good credit score ensures financial institutions about the regular repaying capacity of the borrower. This entails a greater chance of getting a higher personal loan amount for the borrower. P2P lending is for a smaller amount as compared to a personal loan.
3 Borrowers with a Low Credit Score Can Still Qualify
Even borrowers with a low credit rating can qualify for a personal loan. However, they would be charged a higher rate of interest. Still, if the financial institution is convinced about the borrower’s earning capacity and regular repayments, such borrowers could still get personal loans at affordable rates. On the other hand, P2P lending favours borrowers with a good credit score so as to avoid the risk of default.
4 Longer Loan Tenure
Personal loans give sufficient time to repay the loan, with the minimum tenure being of one year. Also, such loans are more manageable on a monthly basis easing the borrower’s repayment schedule.Loans under P2P lending are for a shorter period as compared to personal loans granted by financial institutions.
5 Supported by Government Legislation
Traditional personal loans are bounded by the Indian Government rules and regulations. Also, they are supported by financial institutions who follow stringent procedures before granting loans. This is not the case with P2P lending which is a direct online lending process with no financial institution as intermediary. Also, the government does not provide any sort of insurance or protection to lenders for such lendingif borrower’s default. Also, there are stringent norms which are to be followed by P2P lenders before they can qualify to lend loans to borrowers.
6 Minimal Risk of Default
Personal loans have a lower risk of defaultas compared to P2P lending. This is due to the fact that the former is given only after stringent verification procedures and eligibility criteria by the financial institutions. Since P2P, is a direct mode of lending, there is more credit risk for lenders due to fake borrowers or defaulters.
Hence, choose the loan type wisely that meets your immediate financial needs and doesn’t create a need of sending multiple loan requests.
