“Crowdfunding vs peer to peer lending” – Have you ever got confused between these two terms? Well. both these terms are useful in driving funds for your business or project.
Crowdfunding and peer-to-peer lending are quite common when it comes to collecting funds when one feels the need for money. But you must understand the differences between these two processes. They are similar but not the same.
In my current blog, let me explain to you in detail about crowdfunding vs peer to peer lending.
Crowdfunding VS Peer-to-Peer Lending
Crowdfunding involves many contributors who contribute funds for your project. Whereas, peer-to-peer lending involves usually only one person who lends money for your business or project.
What is the difference between crowdfunding and peer-to-peer lending?
Crowdfunding is all about collecting money from the crowd. Many people will come forward and contribute funds to crowdfunding. But peer-to-peer lending is about taking a loan from a person who lends money. This is how these two processes work.
Crowdfunding VS Peer to Peer Lending- 11 Main Differences to Understand
Let us focus on each difference here so that you will get more clarity regarding crowdfunding and peer-to-peer lending.
1. Donors will NOT EXPECT anything in return in the Crowdfunding
In crowdfunding people who come forward and invest money will not expect anything in return. You don’t need to pay any profits, gifts or anything in return.
But in peer-to-peer lending, lenders have their own rules. They will decide the fees and all. You have to pay the fees and also you have to meet the requirements that they expect from you.
Whereas, in the case of crowdfunding it’s your choice that if you want to give anything in return to the donors or not. For example, if you are raising funds to publish books from crowdfunding then you may give a free copy of your book to donors.
2. Peer to peer lending usually needs FORMAL APPLICATION
Peer-to-peer is all about getting like getting a loan. So, you need to apply for it. Every lender may have his own application strategy.
In crowdfunding, there is no such formal application. You can directly start to raise funds from the crowd. You don’t have to wait for application approval.
And in peer to peer lending process, you must fill all the details properly and carefully to get approval.
3. You have to PAY OFF to the lender in the future days in peer to peer lending
When you collect funds from the crowd through crowdfunding, you don’t need to return that money. You don’t do any commitments to donors.
In the case of peer-to-peer lending, you should return the amount that you are going to get in the form of a loan. You should return the whole amount as per the agreement between you and the lender.
So, I can say that you will be having financial pressure when you opt for peer-to-peer lending but in crowdfunding, you won’t have such financial pressure.
4. You need to PAY INTEREST on the amount that you have received in peer to peer lending
Whenever you buy a loan you have to pay interest on it. And exactly the same thing happens in peer-to-peer lending.
You should pay the whole money along with the interest. And interest rate will depend on lenders from whom you are borrowing such money. Some lenders may charge high, some may charge quite low rates of interest.
Crowdfunding does not include any such interest rate. You don’t need to return a single dollar to anybody in crowdfunding.
5. You can raise more than the TARGETED AMOUNT in crowdfunding
When you apply for peer-to-peer lending, you will get the exact amount for which you will apply. You won’t get any extra money.
But in crowdfunding, you may raise more than your targeted amount. Sometimes many people will donate money and you can drive more funds. And you don’t need to return the extra funds that you receive.
You can’t expect this in peer-to-peer lending. You will not get extra money more than you applied for. So, you should carefully decide the amount before applying for peer-to-peer lending. But in crowdfunding, if you feel you need extra then you can raise extra funds.
6. They will check your CREDIT SCORE and INCOME details in peer to peer lending
While applying for peer-to-peer lending, you should provide details of your credit score. They will think about lending you the money only if you maintain a good credit score.
And you should provide income details also. You should give them the necessary documents as proof along with details. They analyze how will you re-pay the money if they give a loan.
But there is nothing like this crowdfunding. You don’t need to bother about your credit score and your income to drive funds from crowdfunding. You don’t need to provide such details in crowdfunding.
7. Chances are more, your application may get rejected in peer-to-peer lending
If you apply for a loan in the bank then chances will be there that you may face rejections. In the same way, not every lender will accept your application.
They analyze every necessary thing and if they feel that you will return the amount in time then only they accept your application. And without approval, you will not receive any amount in peer-to-peer lending.
Crowdfunding does not include this process. But if you run an online crowdfunding campaign then they may inquire you about it a little bit before launching your campaign. But still, you can easily get approval in crowdfunding but not in peer-to-peer lending.
8. Crowdfunding can be done by implementing MANY IDEAS
There are so many effective ideas for crowdfunding. You will get so many options online as well as offline for crowdfunding.
Peer-to-peer lending has only one way to get money. You have to apply for it and should get approval from the lender to get money. There is no other way.
But in crowdfunding, you can run an online campaign, you can organize events to collect funds etc. In this way there are so many options are available for you in crowdfunding.
9. Crowdfunding is TIME-CONSUMING than peer-to-peer lending
If you apply for peer-to-peer lending you can save time. You will get the required amount quickly if you get approved. The procedure will not be time-consuming here.
But in crowdfunding, it will be time-consuming to collect the amount that you want. Many people should contribute money in order to meet your target. And it will take a lot of time if the amount is more.
And you have to change the strategy in crowdfunding if something is not working well for you. Some ideas of crowdfunding may not be suitable for your project. So, you have to think and plan well to get more funds from the crowd.
10. People will know about your BUSINESS IDEA or PROJECT in crowdfunding
When you run a campaign online for crowdfunding you have to mention your idea and project. This way, many people will know about your business idea. And if you did not have copyright then people may steal your idea also.
While getting a loan from peer to peer lending process you should tell about your idea and plan only to the lender. people will not come to know about your idea and they can’t steal your idea.
So, peer-to-peer lending is a quite safe option for you if you want that people should not come to know about your idea.
11. Peer to peer lending not only includes interest rates but also FEES
You must pay fees for peer-to-peer lenders. If you are a beginner and want to work on your business or project then peer to peer lending option will be costlier for you.
You have to pay extra fees along with interest rates after getting a loan. You should also return the while loan in time even though if your business or project will not be successful.
In crowdfunding, you don’t need to pay any fees. In some crowdfunding online campaigns, you just need to pay some commission in the end. So, this option is better if you don’t want to pay more fees.
Which one will work well for my business – Crowdfunding or Peer To Peer Lending?
Well, both the options have their own plus and minus points. So, you have to choose which process will be effective for your business idea or project. You should choose the one which will help you to raise more funds quickly.
Choose the Right Option to Finance Your Project and Reach Money Target
If you don’t want to return the money that you borrow then crowdfunding will be the best option for you. So, if you think about money then it will work better for you. Also, you can try many ways in crowdfunding as per your requirement.
If at all you have confidence that your idea or project will be having more profit in future days you can choose peer to peer lending option. Here you can actually save time and get the exact amount of money that you want.
So, when it comes to crowdfunding vs peer to peer lending, chose the correct option by analyzing all the differences. Both options help you financially but you need to decide according to your situation and project.