Peer to peer loans, sometimes called social lending, is a fascinating phenomenon and a great way to obtain low rate loans or boost savings. Since the financial crisis and credit crunch started in 2007, many borrowers have found it difficult to obtain affordable personal loans. At the same time, interest rates have plummeted, making it difficult for savers to achieve decent returns. P2P lending brings these two needs together and provides a platform for sensible loans and reasonable interest for savers. What many potential borrowers don’t realise, however, is that there are ways to maximise your chances of landing such loans.
1) Check out your credit reports
Some P2P borrowers forget that it is not only lenders and financial companies who can look at their credit reports, they can too. When you check your credit report you will be able to see if there is anything that is potentially hurting your credit score and may put off P2P lending individuals. The UK government, for example, has passed legislation that means you can see your full credit report for only £2 and many companies offer a multi-agency report free as part of a free trial.
2) Dispute any inaccuracies on your credit report
It is quite possible that there will be inaccurate information on your credit report and this could hurt your credit score and lessen your chances of landing personal loans. This might include out of date information about previous residents at your address or errors about your own history. If there are mistakes, challenge them and have them removed from your file.
3) Tackle delinquent accounts
Lenders want to be as sure as they can be that you will pay your loan instalments in full and on time. If you have any credit cards, loans or other financial agreements that are in arrears or have missing or late payments then these should be brought up to date before completing your profile and making any applications for loans. It is a good idea to establish a solid six months of payments before making any loan application.
4) Reduce your debt to income ratio
One of the most important factors that potential lenders will look at is your ability to pay back the loan. A key criteria here is your debt to income ratio. Put simply, the lower that ratio is the better chance you have of acceptance and the lower your interest payments will be. Anything you can do to bring your debt repayments down will have a positive effect on your application.
5) Be realistic in your application
Potential lenders will look at your income and outgoings and make a judgement about what you can afford before offering any low rate loans. Asking for more than your circumstances, such as credit score, credit history and debt to income ratio, would suggest is reasonable is counter-productive. You won’t get the loan and you will appear naive or even desperate. Instead, be realistic in what you ask, based on the understanding you have gained of your own credit report.
Joe is a former financial advisor and media representative for American Express and Ameriprise. He was the “Money Man” at Detroit television WXYZ-TV, appearing twice weekly. He’s also appeared in Bride, Best Life, and Child magazines, the Los Angeles Times, Chicago Sun-Times, Detroit News and Baltimore Sun newspapers and numerous other media outlets. Joe holds B.A Degrees from The Citadel and Michigan State University.
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