What is P2P lending?
What happens when you remove the banks from the borrowing equation and connect investors directly with borrowers? Well, according to the peer to peer movement you'll get a better personal loan deal with lower rates and fees. Peer to peer platforms aren't just limited to the personal loan world either but include all sorts of services including car-sharing, house swaps, clothes swaps and more...
For instance, house swapping platforms like AirBnB allow homeowners to rent out their property to holiday goers for a short stint. The homeowner gets some much-needed cash and the holiday-goer benefits from paying a cheaper amount for their overseas accommodation.
Traditional peer to peer lending and borrowing works in the same way, as an individual investor uses the P2P platform to lend directly to a borrower. The investor benefits from earning a profit through the interest charged and also gets that good feeling of helping out a stranger, whilst the borrower receives a more competitive rate and lower fees than what is offered by the big banks.
What's the difference between a P2P lender and a credit union?
Just like peer to peer lenders, credit unions are also part of the strangers helping strangers social movement, as they are completely customer owned and run by the philosophy of passing profits back to customers not shareholders.
However, there is a distinct difference between the two, as credit unions don't offer the option of becoming an investor like with a P2P player.
As a borrower though, your experience should be the same whether you go for a P2P lender or credit union - you apply for the personal loan and once approved you pay it back in set instalments over an agreed period of time (usually between 1 to 5 years). So if you're trying to choose between going for a P2P lender or credit union, the decision breaker should really be the better deal.