What is P2P Lending?
Peer-to-peer (P2P) lending allows individuals to borrow loans directly from a party or an individual without relying on traditional financial institutions such as banks and so on. This type of transaction occurs directly between two parties – one in need of money and the other looking to lend.
How do P2P Platforms Work?
A peer-to-peer platform connects the individuals in need of money with those willing to lend. Simply, it connects the borrowers with the lenders. Typically, transactions take place between both parties via a website or an application. An individual or a small business can register as a borrower or a lender on these platforms by submitting the relevant details. Once registered, loan offers are made to borrowers who meet the loan criteria. Borrowers must repay the loan and interest rate via EMI within a specified time frame.
Types of P2P Lending
- Personal Loans
- Student Loans
- Secured Business Loans
- Commercial and Real Estate Loans
- Crowd Lending
Advantages of P2P Lending
P2P lending offers a few great advantages to both lenders and borrowers.
- No need to visit banks
- Lower origination fees
- No intermediary between borrower and the lender
- Quick and Easy
- Gives higher returns for lenders compared to bank deposits
- Funding access for borrowers with low credit scores
- Lower interest rate for borrowers due to competition between lenders
