To be eligible for a peer-to-peer loan, you must be over 20 years old and have been living in the UK for at least 3 years. Customers must be in employment with an income of £1,000 per month and have a working debit account to allow for monthly repayment.
The peer-to-peer company will run a series of credit checks as part of the application and the quality of your credit score will reflect the rate of interest you will repay. Lenders typically like customers with good credit because they have demonstrated they have repaid other loans in the past. Above all, if the customer is a homeowner or car owner, the lender considers that they are used to repaying monthly instalments in the same way as a peer-to-peer loan. So if you have a good credit score, you are considered low risk and therefore you are offered a low interest rate for the loan you wish to borrow.
By comparison, if you have a bad credit score because you have missed repayments on loans and credit cards in the past, you will be quoted a higher rate of interest because you are a considered a higher risk to the lender. This higher rate intends to cover the cost of your loan if you become bad debt.
If you cannot repay your loan or miss repayment, the information will be sent to the credit reference agency and it will be reported on your credit file that your loan was in default. This may lower your credit score and make it harder to access credit from other lenders in the future.
Late fees and charges may apply. If you miss a repayment, the lender will typically reach out to you via email or phone to discuss repayment options. Usually, lenders can offer forbearance giving you a more flexible arrangement but you may be charged late fees if you do not respond to their communications.