Ben Todd | Apr 16, 2017 | 3
Peer to Peer Auto Loans: What Are They And How to Get One?
There are many reasons why you may want peer to peer auto loans. You may be angry with your current bank or banks in general and want to take your business out of their hands. You may have a good credit rating and want to enjoy the lower rates of interest that peer-to-peer companies charge. Maybe you may already have a relationship with the lending company and want to continue with them, or you may want a car that other car-loan companies and finance companies will not give you money for.
How To Get Peer To Peer Auto Loans
Find the peer-to-peer company for you, and find out what sort of rate they will offer you. Each company does it a little different, but the peer-to-peer companies that serve the US seem to enjoy giving people a credit band.
The credit band is based on each applicant’s creditworthiness. If you have a terrible credit score and a poor credit score, then peer-to-peer companies will typically put you in a lower credit band. If you have a great credit score and a good credit history, then you will be placed in a higher credit band.
The higher your credit band is, then the more borrowing options you have. Some peer-to-peer companies will give you access to many types of loans with great interest rate and terrible interest rates. Others will only allow you to see options where you receive a great interest (APR) rate.
Remember This – You will see different loan offers based on your credit score (credit rating/FICO score) and your credit history.
What If The Peer-to-Peer Company Says Yes?
You will receive a message either right away or a day or two via email. They will say that you have been accepted and you will gain access to the peer-to-peer lending company’s loan marketplace. Here is where you may pick the loan that suits your needs.
In most cases, you will have numerous options that give different rates, different loan terms (repayment times), and different APR rates. Some peer-to-peer lending companies offer small amounts, and some such as the Lending Club P2P company will offer up to $25,000.
Remember This – Just because high amounts are on offer doesn’t mean you should take them. Seriously consider if you want to be in debt for that long.
Once You Have Picked Your Auto Loan
It is now a case of entering all of your details and applying for the loan. They may still say no if the circumstances permit. They may say no if your employment is up to scratch, or if your credit history isn’t as clean as you made it out to be. Enter all your details and apply for the loan. When your application goes through, you will be able to finalize your loan.
The application process depends on the peer-to-peer company that you choose. Some will run a soft search, tell you that you are approved, and then allow you to search the loans, and then have you enter your details.
Soft search > approved > see loans > enter details > sign contract
Some will run a soft search, tell you that you were approved, make you enter your details and then let you see the loans. In both cases, they have you finalize the loan at the very end where you sign the final contract.
Remember This – Your credit search will happen before you sign the contract, it is only the first search that is a soft search.
You Still Have Time To Cancel
It is known as the FTCs cooling-off period. It is not to be confused with the distance selling rules that protect you when you buy things online. Even if you got your loan online, you have a three-day cooling off period where you may cancel your contract and return the money without any penalty at all.
Usually, the cooling off period is for three days, but some companies give you a little longer. You have to inform the credit company and return their money. Their contract or website should explain how to cancel the deal and return the money. If you feel that the company didn’t keep their end of the deal and/or are making it difficult for you to cancel the contract, then you may get in touch with the FTC and file a complaint with them.
Remember This – Getting into debt is horrible. You are going to have to give your money away for years and years to pay it off. Don’t ignore your buyer’s remorse when you feel it. Consider cancelling the loan.
Where Is The Frickin Money?
Peer-to-peer loans are powered by people, and their money has to populate your loan. If there is money on the market already, then your loan will fill up quickly and you will have your money in the same amount of time it takes for a personal loan to appear in your account. If your loan is very large or the market is looking a little lacking, then it may take a while for people to put their money into the system and populate your loan.
Most of the big and established peer-to-peer companies have thousands of investors, which means their money markets are bulging with money they can lend out. Even loans of $25,000 are usually filled with two days.
Remember This – The larger your loan is, the more chance there is of it taking longer to appear in your account. A larger loan will often require more lenders to get in on the loan.
Do You Want A Secondhand Car Or One With Lots Of Mileage?
If that is the case, you are going to have trouble finding a car loan or car finance. Most car loan and car finance companies prefer you to have a new car, or a car from a dealer, or a car from a dealer that is fairly new. If you want a car that has lots of mileage and/or is second hand and/or is not from a dealer, then you will need a personal loan or you will need help from a company that offers peer to peer auto loans.
Soft search > approved > enter details > see loans > sign contract
Remember This – Many people search out peer to peer auto loans because they want a secondhand car or a car that has driven lots of miles.
Prosper Asks You To Consult Their Lending Community
The peer-to-peer company called Prosper are happy to give out peer to peer auto loans, and they do it by having you get the money from their investing community. If you apply for a car loan with Prosper, you are able to search their online marketplace and find peer to peer auto loans that suit you.
You do not have to specify that your loan is for a car. It may not even be an issue for some peer-to-peer companies. They will simply consider you for a personal loan. If you spend that personal loan on a car, then that is your business.
Remember This – You are putting your lending requirements into the system. If they say you are suitable, then you may pick or receive your loan.
Will Applying For A Peer to Peer Auto Loans Affect Your Credit Rating?
Darn right it will. Apply for any sort of credit, and it is going to appear on your credit rating. When you make your first searches to get a rate and such, you will not have it appear on your credit history. It is only after you have clicked to confirm a search of your rating that they will actually take a look at your bank history and credit rating.
Remember This – The search at the beginning will not affect your credit rating, but the search will later when you apply for your peer to peer auto loans.
You Do Not Need A Perfect Credit Score
If you are searching for peer to peer auto loans, then you will typically need a good credit score, but it doesn’t have to be perfect. They offer different deals for people who have different credit scores. For example, Prosper rank people depending upon their credit rating. People with an AA ranking will be able to get a loan with interest rates as low as 5.99%. People with a poor credit rating and/or first-time borrowers will receive a HR ranking, which allows them loans with 36% interest rates.
Remember This – A better credit rating (FICO score) will help you get a better interest rate and will lower your chances of being rejected by the peer-to-peer lending company.
What About Sub-Prime Auto Loans?
Peer-to-peer companies offer their own version, but to define peer-to-peer lending as sub-prime is currently inaccurate. Peer-to-peer lending companies do take your credit score seriously, and they are unlikely to accept your application if your credit score is below 640. The only light at the end of the tunnel is if you do not have much credit history because the peer-to-peer lending company may accept your application in those circumstances, but the interest rate you pay will still be relatively high.
Remember This – A sub-prime auto loan will have an APR in the region of 36%-99%, which is far too much for anybody.
Should You Consider A Sub-Prime Auto Loan?
If you have a poor credit score and you are not allowed a car loan or any type of car financing from banks and finance companies, then you may be tempted to consider a sub-prime auto loan. However, they are a truly terrible idea.
The interest rates are so high and the repayment terms are so unfair that you are really shooting yourself in the foot if you get one. If you need to get to work, then take the bus, train, walk, take a bike, or get a lift with somebody you work with. Sub-prime auto loan companies are giving loans to people who need the best rates the most, and instead, they give borrowers the worst rates, the harshest penalties and the worst repayment terms. If it has come to you getting a sub-prime loan from a sub-prime auto loans company, then simply do not get a loan–go without a car.
Remember This – A sub-prime auto loan company will chew you up and spit you out because they make their money from people who cannot afford to repay their loans.
Peer-to-Peer Companies For People With Poor Credit Ratings
Peerform offers peer to peer auto loans, and they do cater to people with lower credit scores. They are going to sting you with a high interest rate if you have a lower credit rating, but their interest rates are still a fraction (about a third) of what you would receive from a sub-prime auto loan company. If you have a credit score of below 640, then consider a peer-to-peer company, or better still, spend six months building your credit rating a little to make it better.
Remember This – It is better to spend six months building your credit rating and getting a cheaper loan than it is to take whatever loan comes your way and end up buried in debt.
Conclusion – Use Peer To Peer Auto Loans If You Have A Good Credit Rating
It is a little unfair saying that you should only get peer to peer auto loans if you have a good credit rating, but people with the best credit ratings are the ones who get the best interest rates from peer-to-peer companies. A peer-to-peer company is good for people with an okay credit rating, and they tend to be forgiving with people who have no credit rating, but the loans are difficult to get if you have a poor credit rating.
If you do have a poor credit rating, then consider working for six months on your rating until it improves a little. If you are looking for a big loan for your new car, then a peer-to-peer company may offer you the best deal. Remember that you do not always have to tell the company you are getting a car loan, you may simply say that it is a personal loan.