% on a peer to peer loan

Candy0107

Hi,

Can anyone help to answer a question which I just can't figure out ?

I am trying to compare 2 loans

Loan a - with a peer to peer lender. 3 years with an annual rate of 6.9% apr of 12.4%
Loan b - with my bank. 4 years with an annual rate of 8.9% apr 8.9%

I have already made my mind up to go with the bank option as the apr is lower, but why would the peer to peer lender have different values ?

Thanks
Candy

ViolaLass

Are there fees for the P2P loan?

DCFC79

Maybe they use a different criteria to determine the apr.

SeanG79

There are P2P lenders that charge a credit fee, which then gets added to the interest, to determine the APR.

The larger the amount you borrow, the less of an impact the credit fee will impact the APR. For example if you borrowed £1,000 with a £100 credit fee vs. borrowing £10,000 with a £100 credit fee.

andyfromotley

As you are comparing different loan periods and APRs the determining factor should be the total cost of the loan not the APR. (although this is often the same of course). The number should be on the proposals you have received.

Obviously borrowing £1000 from my bank at 10% over 1 year will cost much less than adding it to my mortgage over 25 years at a rate of 2.5%. An extreme example of how APR is not everything.

somethingcorporate

is the P2P lender offering a flat rate (common trick in the car trade) rather than annual rate/apr when quoting the 6.9%?