Limitations of Peer-to-Peer lending

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Peer-to-Peer lending has recently made its entrance into the Canadian market. It has been touted as the best financial thing since sliced bread, but is it really?

Peer-to-Peer lending -P2P lending- is a form of financing, without the middle man, i.e. the bank. Individuals are lending their own money. In Canada, the 2 platforms are Grow and Borrowell.

I personally found  several limitations and disadvantages with this form of financing.

  • In Canada, the maximum you can borrow is 35K.
  • The interest rates are not that competitive. The best currently offered is 5.90%, the highest is about 18%, almost the same as a credit card.
  • In order to qualify for the best rate, you pretty much need a perfect credit score.
  • Monthly payments can be pretty high, even on a 5-year term and a modest amount borrowed. If you have other obligations, you may not afford the proposed payment.
  • You have to pay origination/processing fees
  • You may not received the full amount required, as P2P relies on individual investors. Such investors also may refuse to fund you based on the purpose of your loan.

P2P is definitely not for everyone and not everyone will qualify. You still need to convince lenders you are able to repay the loan. If you have a great credit score and no other debt, it may be an option.

That being said, check with your bank first. The interest rate may be lower and a line of credit may be the best solution, depending on what you want to do.

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