The potential downside of peer to peer loans
Not having to deal with banks ever again is certainly something we’d all like to achieve. So if you’re considering alternative forms of credit, peer-to-peer lending schemes certainly look appealing. But firms such as Zopa, which match people’s savings with those looking to borrow, aren’t for everyone.
By far the biggest drawback although some would call it a strength as is that the majority of people who apply for a P2P loan are turned down. This is to minimise the number of bad loans and defaults on their books, which is no bad thing, but it also means only people with a tip-top credit score are eligible.
Less than 20% of people who apply for loans through Ratesetter and Zopa meet the strict eligibility criteria. And of those, not all are offered the advertised rates, which are often better than those offered by banks and building societies.
So if you have a great credit score and are looking for an alternative form of funding, P2P could be for you. Just don’t assume it will be easy, or that you’ll be getting the headline rate.