Have you stopped trying to clear your credit card and are satisfied making the minimum payment?
Are you usually late with paying your monthly utility bills, like electricity, mobile, etc.?
Have your new credit card/ loan applications been denied?
If the answer to any of these question is ‘Yes’, then, chances are, that you have a bad credit history. Recently, there was an advertisement online stating ‘Bad Credit, No Problem’. Unfortunately, having a low credit score can be a problem, especially when you are trying to apply for more credit. However, the good news is that it is not a problem that cannot be solved.
Why do banks and financial institutions look for a good credit history?
Banks and other financial institutions follow some strict norms about credit scores before approving unsecured loans, like personal loans. When you are providing a collateral, these norms are relatively relaxed. Unless these institutions feel assured that you will repay their loan, they won’t approve your application.
Now, not all borrowers with a bad credit score are wilful defaulters. There are times when certain unforeseen situations put us in a spot that we default on our instalments. Also, first-time borrowers, who don’t have any credit history, find it difficult to get a personal loan.
This led to a need for a more comprehensive approach to assessing the risk associated with a prospective borrower.
Online Peer to Peer Lending
A few years back, fintechs or financial services offered as an end to end offering via the internet, identified this need and created a platform for borrowers with poor or no credit history to be able to avail personal loans. P2P platforms evolved on the principle that there is a more comprehensive method of assessing the creditworthiness of borrowers. These websites offer a platform where Retail Investors lend funds to Retail borrowers without the intervention of banks. Investors and Borrowers can negotiate the terms of the loan and the interest rates and try to reach an agreement.
P2P Lending platforms, like People Lend, take multiple factors into consideration before assigning a risk class to each borrower. Some of these factors are:
Once these parameters are assessed, a risk class is allotted to borrowers. Also, a range of interest, proportional to the risk class is fixed with each borrower. In simple words, borrowers with a poor credit score can apply for a loan at a higher rate of interest as compared to those with a good score. Here is a quick look at how the Peer to Peer Lending process works:
To put it in simple words, here is what you need to do:
Once your loan request is submitted, investors will be able to view the same and can choose to send you an offer of financing the loan completely or a certain percentage of the amount requested. Once you have the commitment of the entire loan amount, the funds are deposited to your account. You then start repaying your loans based on the EMI calendar. You can also prepay your loan in full or in part. While most platform do not charge for the prepayment, it is prudent to check about these charges before applying.
The entire process is online, making it faster and cost-efficient. Ensure that you upload all the relevant details so that the platform and investors have a fair chance of approving your loan request.
If you have a poor credit score, then a personal loan from a P2P lending platform offers you an opportunity to improve your score by ensuring that you repay the loan as committed.
In a nutshell
While there can be many reasons behind having a poor credit score, P2P platforms are here to help you avail a loan in times of need and improve your credit. The interest rates will be proportional to your risk class, so if you have defaulted only on one loan instalment, then you can expect a reasonably low rate of interest as compared to banks or other financial institutions.
Life is unpredictable and the requirement of funds can arise anytime. Hence, having a good credit score is important in today’s times. A personal loan from a P2p Lending website can ensure that your current requirements are met and you have a chance of improving your credit score too. A win-win situation for you.