Peer to peer loans are not a new concept. Instead, this type of loan has been around for many centuries. It has recently become popular again though. This is due to the need to get a loan for reduced or better insurance rates. It has also come about more often since the subprime mortgage crisis when many loans became harder to obtain due to restrictions on certain borrowers.

There is one thing that is quite similar with peer to peer lending and banks. Both do not want high risk clients; therefore, peer to peer options require good to excellent credit scores. A person with CCJs or bankruptcy in the recent past will not be able to get a loan.

Those who use peer to peer lending UK know that it is possible to get over an 8% return with this type of loan. The return is for the individual giving out the loan. The way peer to peer lending works is that the lender is part of a group of lenders that have savings. The savings are pooled into an account used to lend money to a borrower.

The borrower comes along and states how much they need in a loan. If the borrower’s background and credit history support the loan and the funds are available they will be lent. The interest rate is chosen based on current rates and the fair trading rate. In other words, an interest rate that is too high will make it difficult for the borrower to consider the loan; therefore, the lenders try to keep the rates down to an affordable amount. (more…)

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