If you are facing high minimum payments that seem impossible to pay, then you have probably looked into debt relief solutions. After searching for potential solutions to your problem, you are likely to hear about P2P, or peer to peer, lending. The advertisements and loan solutions make it sound like a useful way to consolidate, but you must learn the details of how it works to determine if it will help your personal situation.
Learning about the reality of P2P lending is an important part of ensuring that you are able to reach your debt relief goals. When your goal is debt consolidation via a loan from a peer to peer venue, you will find that the reality does not always match the advertisements.
The advertisements commonly claim that you will have the opportunity to request a loan with any interest rate that you want. You simply make the request and find a lender who is willing to work with your needs. Since the lenders are private investors, they will provide loans that allow you more opportunity to reduce your interest rates during consolidation.
The problem is that the reality does not match up with the advertisements. While it is true that you can make requests that have a maximum interest you are willing to pay, many investors might not be willing to provide funds. A risk assessment is still performed and the investors are able to make an educated decision about whether you are likely to pay or not. From that information, the investors will either agree or deny the funds.
In some peer to peer venues, you will have more to think about than just the interest you want to pay. Some companies will reject your proposal before it gets to the lenders. A high risk individual is not given a loan if the company determines that the proposed interest rate is too low based on the likelihood of repayment.
The advertisements make the P2P lending sound like it is a solution when your loan is rejected at a traditional lending institution. The reality is that only around 10 percent of loans are issued to individuals who apply, so you cannot guarantee that your loan will necessarily go through as you expect.
Loan Rates and Risk Assessments:
A key part of getting P2P loans for debt consolidation is understanding the basics of how risk assessment works and the likely interest rate that the lending company will require for approval. The risk assessment helps determine fair interest charges for investors who are taking a risk in allowing you funds for your needs.
The first element of risk assessment is the credit score. A high credit score suggests responsible repayment while a low score suggests a high risk. The credit score is a major component of determining the risk, but it is only one of the key elements of the loan assessment.
Beyond the basic credit check, a credit history report is evaluated. If you have good credit, but have recently missed payments or paid late, this will show a higher risk than if you are always making every payment on time each month. The report showing missed or late payments is a sign that you are struggling with your current debts and financial responsibilities.
The final element of risk assessment is your debt to income ratio. As a general rule, your total minimum debt payments per month should not exceed 1/3 of your monthly income. If it is higher than that 33 percent mark, it is improbable that you are able to easily pay your debts and manage other financial responsibilities as well. A low debt to income ratio will suggest that you are not struggling financially and thus are able to easily manage the new loan.
If you are looking into debt consolidation, then you are likely to fall into a medium to high risk category. You can expect that an interest rate between 20 and 35 percent is the likely outcome of a peer to peer loan offered for your financial needs. Unfortunately, these figures are not likely to help your financial situation.
When you are struggling with unsecured debts, you can negotiate lower interest rates and settlements with the current creditors. This will not only prevent taking out high interest consolidation loans that do not help, it will also provide you with the professional help you need. A professional debt relief company works through negotiation with current creditors and gives you the help you need to create a new budget plan.
You do not need to turn to high interest P2P loans for debt consolidation. If you want to find out more about the alternatives available for your situation, fill out the form now or call us for a free debt analysis.