Is P2P Lending a Good Option for Debt Consolidation?

When people have multiple loans in their names and then combine these debts into one, it is called debt consolidation. It is often done to manage finances or to lower the interest rate. There are several ways you can consider if you wish to consolidate your loans or debts, and one of them is through P2P lending, also called peer-to-peer lending. Here, what happens is, you borrow money online from individual lenders, instead of a bank, and then you repay the money as per the loan terms. But is it wise to consider P2P lending for debt consolidation? In this brief blog, we will learn what debt consolidation is, how P2P lending works, why you should go for a P2P loan for debt consolidation and more.

What Is Debt Consolidation?

Debt consolidation, as the name suggests, is all about combining multiple loans and converting them into a single loan. With this, you take out a new loan to pay off all your current debts. This way, instead of paying several lenders, you only have one loan to manage. It not only helps you simplify your finances but also reduces your monthly payments as you may get a lower interest rate. You can use a loan for debt consolidation to pay off credit card debt, personal loans, or other high-interest debts.

Also Read : Get Rid of Your Credit Card Debt Instantly With 13 Karat

How P2P Lending Works

Before you take out a P2P loan, you should be aware of how P2P lending works. P2P lending is a way through which you borrow money directly from individuals or groups of people instead of borrowing from a bank. These transactions happen through special online platforms that connect borrowers with lenders. Here’s how it works:

• You fill out an application on a P2P platform for a peer-to-peer debt consolidation loan.
• If your application is approved, the lenders will be ready to fund your loan.
• Once funded, you get the money, which you can use to pay off your existing debts.
• You repay the loan over time by making regular payments through the platform.

Why P2P Lending Is a Viable Option for Debt Consolidation

Here are some of the reasons why P2P lending can be a good choice for you:

Lower Interest Rates: If you have high-interest debts like credit cards, then a peer-to-peer debt consolidation loan would be perfect for you as it may offer you a lower interest rate.

Easier to Manage: Instead of dealing with multiple loans and payments, you only have to worry about making one payment each month. This would not only reduce your stress but also make it easier for you to keep up with your finances.

Flexible Loan Terms: P2P lenders often offer more flexible loan terms in comparison to many other banks.

Faster Process: Getting a loan through a P2P platform can sometimes be quicker than going through a bank.

Risks of Using P2P Lending for Debt Consolidation

Yes, there are also a few risks associated with using P2P lending for debt consolidation.

• You get higher interest rates for a bad credit score.
• P2P platforms often charge fees which can range from 1% to 6% of the loan amount.
• P2P lending depends on individual lenders being willing to lend you money. Sometimes, you may not get the full amount you need.

Who Should Consider P2P Lending for Debt Consolidation?

Are peer-to-peer debt consolidation loans good for you? If you fall in the category of below-mentioned people, then you can go for it.

• If you have a decent credit score, you can consider P2P loans as you may qualify for lower interest rates.
• If you are tired of managing multiple debts with different due dates, a loan for debt consolidation through P2P lending can simplify everything into one easy payment.
• If you are looking for quick approvals, P2P lending platforms can sometimes approve and fund loans faster than banks.
• If you have been turned down by a bank, P2P lending can still be an option for you.

Conclusion

These are some P2P lending benefits and risks you must be aware of. If you are okay with it, then P2P lending is a good option for debt consolidation. Download the 13Karat app to get better options to explore.