FinTech is on the rise, and along with it comes various forms of investment. P2P lending is one of these disruptive forms which has quickly become popular amongst those needing to take out quick business loans who may not be eligible for other types of loans, such as small businesses or entrepreneurs.
As processes are done through accessible online platforms, many around the world and in Singapore are starting to use P2P lending as their choice for loans. However, it is important to remember that every loan option comes with its own set of pros and cons. Our ultimate guide will delve into the ins and outs of P2P lending, and so you can decide whether this could be the best option for your financial requirements.
What is peer-to-peer (P2P) lending?
P2P, or peer-to-peer, lending is a FinTech tool that lets you take out secured loans directly from other individuals or investors through an online platform. It has been especially attractive for SMEs and startups seeking out more accessible ways to get funding, seeing as traditional bank loans or other types of loans might have certain requirements they cannot meet.
P2P lending has even been issued with a digital bank license by the Monetary Authority of Singapore, marking its importance and legitimacy as a means for borrowing money.
These platforms facilitate all the processes expected for taking out a loan, such as asking for identity verification, considering particular loan requests, and examining creditworthiness during the application phase, whereupon the interest rate is determined based on the borrower information provided. As part of their services, these platforms will then assist with the loan disbursement and repayment processes, typically charging a fee that is deducted from the interest paid.
What is P2P investing?
On the other side of the exchange, P2P investors see these platforms as a very lucrative option, as they have the opportunity to make good profits from loan returns. They can also choose which borrowers to engage with by scanning all the loan listings on that particular P2P platform, choosing to invest in loans that best line up with their own preferences and goals. They also have the choice to fully invest in the loan or just a portion of it.
Pros and cons of P2P lending
So is P2P lending the right choice for you? Before making your decision, you should be aware that there are both advantages and risks associated with this method of getting a loan. The table below highlights the pros and cons of P2P lending for easy comparison.
Easily accessible funds
Potentially limited loan amounts depending on available or suitable investors
Flexible repayment schedule
Entails more thorough financial planning to ensure terms are kept to
Interest rates are calculated according to your financial circumstances, e.g. income, creditworthiness
Additional fees may be charged for the platform’s services
Quick process to secure funds online
Potential cybersecurity risks and security threats
Less documentation required for application
Risk of fraudulent activities or identity theft might be higher
Overview of P2P lending
Overall, P2P lending presents vast opportunities for SMEs, startups, and individuals looking for access to quick funds when they find themselves at a disadvantage of taking out a loan from banks or traditional financial institutions. Peer-to-peer loans could be a great solution, allowing you to borrow money that suits your specific requirements on an accessible virtual platform.
Although, it is essential to be wary of the risks associated with P2P lending, such as cybersecurity risk and security breaches, additional fees involved, and a lack of investors on the platform who are able to provide your desired loan amount.
P2P lending vs personal loans
If you are still unsure whether P2P lending might be the best option for you, there are also other loan options to consider. Personal loans remain a popular choice for individuals in Singapore due to the large variety of products on offer and their overall security, as these loans will come from licensed financial institutions and banks. The below table outlines the differences between P2P lending and personal loans, allowing you to make better-informed decisions.
Individual lenders or investors through online P2P platforms
Licensed financial institutions or banks
May be more lenient depending on the lender or investor
Varies depending on the loan option but typically focuses on income, creditworthiness, and repayment ability
Generally competitive, calculated based on borrower’s financial profile
Between 1% - 4% per month
Varies depending on specific needs, but maximum loan amounts may have limitations
Up to 4-6x monthly salary
Flexible according to borrower’s preferences
Typically between 1 to 7 years with fixed monthly instalments
Within 1 day
Within 2 working days
Subject to security risks and regulatory changes
Secure, as obtained through reputable financial institutions or banks
Platform service fees typically apply
Prepayment charges, late payment fees, or early repayment penalties may apply
Find trusted personal loans with Lendela
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- P2P lending is a popular method for borrowing and investing money online in Singapore, due to its easily accessible nature.
- The pros of P2P lending include direct and quick access to funds, loan term flexibility, and less documentation required for application.
- The cons of P2P lending include cybersecurity risks, additional fees charged by the platform, slightly limited loan amounts, and potentially higher interest rates.
- P2P lending may be a good choice for SMEs or startups looking to gain quick funding they may not have access to from traditional bank loans, however it is prudent to explore all options available such as through using Lendela's loan comparison platform to ensure you are getting the best deal possible.