If anyone of you is among the homeowners who are struggling after finding out that unsecured debts add greatly to your inability of making minimum payments, you would be then considering debt consolidation loans. In such a case, mostly a traditional bank’s rate doesn’t suit you. You need to know how the system works if you aren’t considering to go for peer to peer lending.
Basics of Peer to Peer Lending:
Peer to peer lending is also known as P2P and is different from the traditional banks or institutions. In peer to peer lending, you borrow from a single or group of investors instead of an institution. These people pitch in to help you with the funds you need.
In peer to peer lending, you will be the borrower and can tell the rate of interest yourself. Also, you can tell the loan term such as one year or five years.
On the other hand, in this case, the problem comes when you have to find the investor who is willing to give you the required funds. If someone is not offering a good rate of interest according to the FICO score, you might not be able to get many investors who will be willing to offer you funds.
Another factor for consideration is that it depends on the P2P lending company how they qualify someone for the loan. Except the advertisements to get peer to peer lending options easily, the company will still go through your history reports and credit score. Moreover, the companies also perform underwriting reports so that they can determine the risk of default.
This underwriting can either result in the classification of high risk that would mean you have to take a higher interest rate or a disqualification. It all depends on your situation.
The High Interest Rate and Debt Consolidation Conundrum:
Normally a high rate of interest of a loan is not very appropriate for debt consolidation and P2P lending has this problem that you will most likely have to pay higher interest. You may realize that a higher debt to income ratio or a low credit rating can result in to high risk classification.
Your interest rate depends greatly on the high risk classification. You may even end up paying 30-35% on your loan if you state the term period as five years. For a one year loan as well, you might be paying 20-25% rate of interest although this is classified as a less risky one because of its short time period.
For those who are considered more risky for default, the interest is high and it results as a conundrum when you are looking for consolidation. The unsecured debts that are mostly different to pay every month can even end up with even higher rate of interest if you do not select your loan properly.
Negotiation Vs Loan
You will realize that mostly peer to peer lending is not the best way of handling debt consolidation for your unsecured leans and such debts. The issue here is mostly that the lender will be an investor and there are a lot of chances that you will not get a very reasonable rate on interest for your debt consolidation.
If your goal is to consolidate, it will result as a classification of high risk. The consolidation loans are mostly used when someone’s current debts become very difficult to manage. Therefore, either you are accepting that you have a real problem in paying off your debts and the lender will then charge you with a high rate of interest, or he will not offer you funds at all. Lenders are private investors who pick loans according to their own will.
It is always better to negotiate to consolidate and to settle your accounts as this does not need a really good credit score and therefore this does not depend on individual choices to offer you funds. By negotiating, you do not have to get a new loan because you will sort things out with your own creditors.
Debt negotiations require a professional who will explain you’re the whole situation and will ask your creditor that they should reduce the interest and cut some of the principal amount. This means that you will actually be saying money. It will then end your debts in a time period of 24 months to 48 months without getting involved in any new loans or complicated solutions. Often negotiation works better for people rather than other consolidating debts.
This peer to peer lending is good in some situations but not for debt consolidation. High rate of interest and risk of not getting a loan is too much of solving your problem, so look for all options and then make your best decision.