Understanding Peer-to-Peer Lending in Commercial Real Estate Industry

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During the last decade, there has been a great increase in the internet fuel trend in Loan Options for When You Need Money Fast, which is peer-to-peer lending.

If described in simple words, it is a form of financing that helps the borrowers get a loan from a group of individual lenders without going through the traditional means of getting financing from institutions like banks.

The demand for such type of financing is expected to grow and reach new heights. In fact, as per a study done by Bank of America, 36% of the adults mentioned they had used P-to-P lending services.

The global market was expected to be around $67.93 billion in 2019. While by the end of 2027, the global industry is expected to go as high as $558.91.

Until now, the majority of P-to-P loans have been personal. They have been used to finance home improvements or for paying off credit card debt.

But lately, P-to-P lending is getting more into the mortgage business and has maintained a steady growth there.

How P2P lending works?

Peer-to-peer lending is a popular form of direct lending money to individuals or businesses that have official financial institutions working as intermediates in the deal. Generally, P2P lending is done online. A platform that matches the lenders with potential buyers.

P2P lending offers both unsecured and secured loans, but most of the loans in P2P lending are unsecured personal loans. Herein, secured loans are known to be quite rare in the industry and are usually backed by luxury goods. But due to some unique characteristics, peer-to-peer lending is considered a great source of financing.

Peer-to-peer lending is quite an easy process. The transactions are carried out through a specialized online platform. Here are the steps that clearly describe the P2P lending process.

  • The potential borrower who wishes to get a loan needs to complete an online application on the peer-to-peer lending platform.
  • The platform will assess the application and will determine the credit rating and the risk of the applicant. Now, the applicant will be assigned an appropriate interest rate based on his profile.
  • When the application is approved, the applicant will receive the available options from the investors based on the assigned interest rates and the credit rating.
  • Now, the applicant needs to evaluate the suggested options and choose the one that best fits their need.
  • Finally, the applicant is responsible for paying periodic monthly interest payments and principal repayment amounts on maturity.

The company that maintains the online platform will charge a fee from both the borrower and the investors for the provided services.

Pros and cons

There are numerous advantages one can get with peer-to-peer lending. It is beneficial for both the borrowers and lenders. Here are some of the benefits that you need to know about.

  • P2P lending is quite a great means for getting higher returns for investors when compared to any other type of investment options available in the industry.
  • For some of the borrowers, peer-to-peer lending is known to be more accessible for funding than any other conventional loans that they can acquire from financial institutions. This is because of the low credit rating of the borrower or when there is atypical purpose for the loan.
  • P2P loans generally come with lower interest rates. This is because there is greater competition between the lenders and low origination fees.
  • The services here are often low when compared to the other forms of financing. It reflects the lack of overhead that P2P has.
  • The P2P lenders generally approve people even when they have lower credit scores. No doubt the benefits surely will attract you to get the financing but you must also know about the disadvantages of the same.
  • When it comes to considering the time required for processing and getting the loan approval then, it can be quite long. This happens when there is a lower credit score and the need to assess the borrowers more completely.
  • The collection fees for those who do not pay back the loan on time are very steep. This clearly erodes any interest advantage that is offered by this form of loan.
  • Remember peer to peer loans are exposed to high credit risks. Most of the followers who apply for P2P loans have low credit ratings that do not allow them to get conventional loans from a bank. Therefore, the lenders must stay aware of your default probability on their part.
  • There is no insurance available from the government end or any form of protection to the lenders in case the borrowers default on the loan.
  • Some jurisdictions don’t even accept peer-to-peer lending or ask the companies that provide such services to comply with investment regulations. Thus, peer-to-peer lending may not be available to some lenders or borrowers.

Who can benefit?

Just as mentioned above, a major advantage of using a P2P lender for a mortgage is that they approve people even with low or fair credit scores. This is something new for homeowners, especially millennials, who can benefit from it.

People who fall into this category tend to be pushed out of the mortgage market. However, with the rise in the P2P market, most of the people who have been logged out, including those who are starting to develop their credit histories, have found a way to make homeownership a reality for themselves.

A mix-and-match option

Despite being a great option for financing, the companies offering P2P mortgages are very few. The borrowers thus have turned to a hybrid strategy.

They choose to use it for financing the down payment for the property and pay off the balance with a conventional mortgage loan.

But keep in mind getting a P2P loan and using it for a down payment are two different things. Just make sure you check if the mortgage company will accept a P2P loan as a down payment.

Popular P2P lenders

When talking about P2P lenders, you must have already heard about Sophie, which is the San Francisco-based P2P lender that offers both mortgage refinance and mortgage loans in 29 states and the District of Columbia.

They are ready to spread their wings to other cities and districts as well. At the same time, there is also National Family Mortgage that facilitates peer-to-peer home mortgage and refinance loans among relatives.

In addition to this, Lending Club Corp has assured about $60,000,000 in loans and is already discussing plans to expand the mortgages.

No doubt, the availability of such P2P loans offers great flexibility and benefit to the borrowers. However, it is crucial to research well and identify a good lender for the financing.

With proper research and analysis, you will be able to work with someone who will be able to offer you a good interest rate and financing in an easy way.

Is peer-to-peer lending safe?

When thinking of taking this type of loan, you must know that it comes with a huge amount of risk. There are certain things you need to look out for when taking a P2P loan. This will help you make the smartest decision.

  • Make sure to do thorough research and find a trusted P2P lending platform. It would be an add-on benefit if you find the platform is reputed and well-known.
  • Be on the lookout for any scams. Understand the type of issues or scams that are going on in the market to stay safe.
  • Make sure to keep your online account safe with multi-factor authorization and using strong passwords.

It is also recommended to shop around before you commit to any type of mortgage lender or loan.

Also, you should compare things like loan terms, fees, interest rates, and penalties. Besides, remember to look beyond the multiple payments and think about the total cost of the loan.

When you look at the entire picture, it will help you choose a loan that works well in your favor. Also, keep in mind there are refinancing options available as well.

So, if you are refinancing things like pre-service debt, you will be losing some important loan protection. This will include income-driven repayment programs and loan forgiveness.

At the end of the day, it is your research that will be helpful for you to make the right decision. So, take the step today and find the best deals. If needed find someone who will offer you the right help to get a good deal.

Conclusion

When looking for financing options, especially peer-to-peer financing, things can be quite tough. If you need assistance, you can consider trusting Private Capital Investors.

They have expert professionals who will help you get the best financing options and choose a great deal.

No matter your requirements, the experts will help you get multiple offers that work well in your favor. In addition to helping, you with your financing, they will also guide you in the right direction to safeguard your investment and guarantee better results from it.

Want to learn more? Get in touch with us today.

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