Have you ever found yourself in a situation where you needed fast cash because something unexpected came up? If you’re reading this, the answer is probably yes. But rest assured, you are not the only one. You might have even considered taking out a loan to help you through the temporary financial shortfall and you are certain you’ll be able to pay it back. But choosing the right loan type might be overwhelming, especially when you need money quick. And we know how important it is to make an informed decision, especially when it involves your finances! Let’s compare the pros and cons of peer-to-peer and family loans to hopefully clear things up a bit for you.
What is peer-to-peer lending?
Peer to peer loans are a type of unsecured loan in which you borrow money from another person that is willing to lend you. To apply for this type of loan you need to join a peer-to-peer website or platform. The companies managing these types of websites must be regulated and authorised by the Financial Conduct Authority (FCA) and act as intermediaries between borrowers and lenders.
Peer-to-peer lending pros
- You don’t need to make your family aware of your financial situation if you don’t want to
- If you have a good credit record you might be offered a lower interest rate than other lending sites and banks
- You might be eligible to borrow a significant amount of cash
Peer-to-peer lending cons
- If you apply, your credit file will be checked using a credit reference agency and you will have to pass the peer-to-peer company’s own checks as well
- It’s unlikely you will get accepted by one of the major peer-to-peer lending sites if you have a bad credit history
- Generally, you will only be able to access good deals if you have a good credit rating
- The interest rate you pay is reflective of your credit rating so the lower your score, the higher the interest rate you will pay
What is family lending?
Sometimes when you need extra money the easiest way to get it might be asking a family member that you know has cash to spare. This could easily be just an agreement between relatives but if both parties feel it’s needed, you can also draw up a contract so that it is legally binding. Whether you decide to make it official or not, there are certain pros and cons you should be aware of.
Family lending pros
- You might not be charged any interest and if you are, you will probably end up paying a lower interest rate than if you were to take out a peer-to-peer loan, especially if you have a low credit score
- Your family is unlikely to worry about your credit score, which means you can get a loan even if you have bad or thin credit file
Family lending cons
- You may have less privacy regarding your finances as you’re involving your relative in them
- Your relationship with your relative might be affected if you’re unable to repay the loan
- Your family might not have as much money saved as you need to borrow
- If at some point your circumstances change and you can’t repay on time you might feel bad for the family member who lent you the money
- Lending you money might leave your relatives short for their own unexpected expenses
After considering all these facts, we can see that these two types of loans are clearly not the same, as peer-to-peer lending is a commercial business and family lending exists so that your family can assist you in your time of need. In other words, if you have a bad credit score and your relatives are willing to lend you money, you might want to borrow the money from them as that would possibly be the cheapest and easiest option for you. However, keep in mind that if your circumstances change and you’re unable to pay them back, this might damage your relationship with them.
Alternatively, if you have a good credit score and would rather not share your financial situation with your family or wouldn’t want to risk your relationship with them, peer-to-peer loans might be a good option. With peer-to-peer loans you could get big loans with better interest rates than those offered by banks if you have a good credit score. However, this changes if you have a low credit score, as it’s unlikely you will get accepted by one of the leading peer-to-peer platforms and if you do, you’ll get charged a higher interest rate than if you had a good credit record. If this is the case, you might want to opt for a payday loan or a multi-month loan such as the ones we offer at cashasap.co.uk.
However, please bear in mind that taking out a loan needs to be an informed and responsible decision and you should only apply if you really need it and know that you can make your repayments in full and on time, as failing to meet your loan repayments can cause you serious money problems.
