P2P loans have been available for many years and their popularity continues to increase, especially abroad. They offer more favorable conditions than conventional non-bank loans and at the same time allow interesting value for money to those who want to invest. What is the principle of P2P loans and what is their current offer in the Czech Republic?
What is P2P Loan and How Does It Work?
P2P or peer-to-peer loans are non-bank loans where people borrow from people using so-called P2P platforms. Operators of these platforms publish demand and supply of loans, check the creditworthiness of applicants and manage the entire process of lending money and subsequent repayment.
The demanded loans are funded by several people – public investors who demand lower interest than non-banking companies. Although the interest is not so high, this form of investment is more advantageous for the lender than for example term deposit.
- A creditor (investor) is a person who lends his money with the prospect of a higher return than a banking institution would offer. It deposits funds into its account created on the Internet platform.
- The borrower (borrower) chooses the P2P loan most often because he/she does not reach the bank loan and at the same time wants a lower interest rate than non-banking companies offer. It repays the loan through an account created on the platform.
- The loan intermediary (platform) sends the money to the applicant’s account. At the time of repayment, it sends them back to the accounts of individual creditors, depending on their share of the investment. As a reward for its services, it collects a certain percentage of the installments.
As a rule, both creditors and debtors are given anonymously and only the intermediary has access to their personal data.
Application for P2P loan online
As is apparent from the above, all peer-to-peer loan operations are carried out over the Internet. The first step is to register on the website of the selected company. This involves filling in the required information, and the more information the borrower provides, the more favorable terms will be offered.
No one is likely to be surprised that proof of income is required when applying for a P2P loan. The applicant must indicate and prove, through a series of documents, the employment relationship, when he has worked for a particular employer and his total monthly income. He is usually asked about other loans he is repaying at the time.
It is also necessary to fill in information about the required loan amount and maturity. Some P2P platforms allow you to enter the required interest rate, others calculate it on the basis of the data.
The entire P2P loan processing process is online
P2P companies are thoroughly screening borrowers. If he judges him to be trustworthy, he will place his application in an offer from which registered investors choose. They can offer all or part of the demanded amount. On some platforms, they also have the ability to determine what interest they require for their investment.
The applicant then accepts or rejects the tenders. After the investment has been completed, P2P will mediate the contracts and send them to the applicant and investors. All received bids are combined into one and the debtor repays the resulting amount according to the agreed conditions. Application for P2P loan online is usually free of charge, fees are charged only after its approval.
Amount of interest and fees
The amount of interest depends on both the conditions of the chosen platform and the offer of specific investors. In some cases, interest starts at 3.99% per annum, in others, it rises to 45% per annum. Before applying for a loan, it is worthwhile to monitor the comparison of P2P loans, which will help in choosing the best option.
In addition to the interest, the aforementioned fees also affect the amount that the debtor will ultimately pay. The most common is a credit intermediation fee of between 2% and 9% of the outstanding amount. It is also necessary to take into account the costs of the extract from the Central Register of Enforcement, extracts from registers, etc.
Penalties for late payment
When the debtor is late in payment, default interest or contractual penalties of a few percents of the amount owed begin to jump. The delay is also accompanied by fees for reminders of hundreds of dollars.
In some cases, the so-called loan redemption may occur. If the debtor owes a longer period of time, the intermediary may demand repayment of the entire loan at once instead of regular repayments. For most platforms, redemption occurs after one to two months of delay and it should be borne in mind that creditors are also subject to additional contractual penalties in these situations.