Being in debt is still a worrisome and unsettling situation, but there are now more payment options you can use, which makes it more manageable. One of these is peer to peer lending (P2P). This refers to unsecured personal loans available to individuals, rather than a company, which can be accessed online. Some examples of P2P are payday loans, student loans, and commercial and real estate loans.
Is it a good idea to use P2P to pay off your credit card debts?
The best way to make a good decision is to weigh its pros and cons. Like any loans, this type of lending option does not always provide a wise solution, depending on your situation. In the case of a credit card debt, P2P offers the following advantages:
Lower interest rates
If you have a good credit standing you could get a loan with interest rates as low as 6.03%. Even with a bad credit rating, you may still qualify for a rate that is much lower than the current rate on your credit card. With this option, you can quickly pay off your debts and no longer incur high interest.
Fixed interest rate and payment schedule
Even if you opt for a fully amortized loan spread over a 36 or 60-month period, the interest rate would stay the same. Repayment schedule is also fixed, which means you know exactly when to pay your dues and for how much. This makes it easy to create a budget and stick with it.
So what’s the downside of peer to peer lending?
Origination fees will be deducted from the loan amount, which ranges from 1.1 % to 5%. It could be significant depending on your loan. If repayments are delayed, you will be charged with late payment fees that will cost over $15 or 5% of the unpaid loan balance.
Between the pros and cons, the advantages clearly outweigh the disadvantages.