How Short Term Lenders Are Different Than Most Peer To Peer Lenders

How Short Term Lenders Are Different Than Most Peer To Peer Lenders

Short term lenders and peer to peer lenders pretty much operate on similar platforms in that they both can be acquired from online. Where they differ mainly is their loan underwriting guidelines. The differences basically pertain to funding sources and how repayment is made. Application for both sources of loans is pretty easy and approval is generally within 24 to 48 hours.

One major difference between these lenders is that peer to peer lenders match borrowers to lenders, and borrowers get to choose the competitive loans whereas with most short term lending, borrowers approach a particular lender and deal directly with that particular lender. A good example is the payday loan.

The payday loan, a typical example of short term lending can be very useful when one is strapped for cash and needs a loan to bridge the gap until the paycheck is received. The loan limits are relatively small and don’t involve a thorough underwriting process, usually with a maximum of about $1,000 compared to peer to peer loans which can offer limits as high as $35,000 for individuals and more for businesses.

Another difference between short term lenders and peer to peer lenders is that borrowers enjoy better rates because lenders are technically competing for their custom or business. Whereas with the short term lenders, interest rates and fees are typically very high. A typical payday loan can carry APR of anywhere from 18 percent to 500 percent or more, whereas peer to peer rates might range from 6 percent to 35 percent. Peer to peer lenders offer competitive interest rates which is more attractive to borrowers

The process for short term lending is usually very fast but most of the time a collateral is required. For instance with payday loans, the borrower is asked to write out a post-dated check for the amount borrowed whereas with a peer to peer lending, a collateral is usually not required.

Loan maturity between these two lending structures also differ greatly. Most short term loans offer significantly shorter maturity periods. Some repayments can range anywhere from 2 weeks to 12 months whereas peer to peer loans can take between 3 to 5 years to mature.

Some banks also provide short term loans in the form of lines of credit whereby payments can be made without interest, if paid within a certain period of time. Peer to peer lenders do not offer this incentive. It is a straight loan calculated with interest to be paid over a period of time.

Overall, both platforms of lending offer solutions for financial need but it is up the borrower, be it an individual or a business, to determine which type of loan suits their needs and capabilities

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