All About Peer-to-peer(P2P) Lending

Peer-to-peer lending is a relevantly new way of conducting financial dealing between two individuals directly. There is no official financial institution participating as an arbitrator in between the deal. P2P lending system usually functions through online arenas where a capital lender finds a conceivable borrower matching his/her strategies. In this system, an investor can freely choose his/her borrower according to their choice to whom they believe can repay the amount in due time.

Peer-to-peer type of lending consists of both protected and unprotected loans. It mainly consists of unprotected loans that are completely personal. Only the highly expensive goods go for protected loans otherwise most of the others are unprotected ones. P2P lending has some unique features that make it an alternative option of financing to banks.

The Functioning Process Of The P2P Lending System –

Peer to peer lending is a relatively transparent process. All the possible transactions are done through online mode.

Here are some steps that will explain to you the complete functioning process –

• The one who is interested in borrowing money has to fill up an online application form on the peer to peer lending platform.
• The platform authority accesses the application and determines the credit rating of the borrower. Then after a thorough checking process, the authority determines and assigns the appropriate interest rates to the applicant.
• Once the application gets approved by the authority than the borrower will receive a list of lenders which will be matching his/her credit ratings and interest rates.
• Then, the borrower has a lot of options to choose from. He/she is free to choose any of the lenders from the list.
• The borrower is highly responsible for the repay of the interest monthly and the principal amount at the maturity.

There is a service providing fee that is collected by the peer-to-peer lending platform both from the borrower and the lender.

Advantages And Disadvantages Of The Peer-to-peer Lending System –

P2P lending provides some crucial benefits to both borrowers and lenders. As compared to any other investment method P2P lending provides the highest return rates to the investors.

The funding benefits are more accessible, it is more convenient to borrow or lend capital from the peer-to-peer lending system than to do it from any other organized financial institution. This may be caused by the low credit rating of the borrower or atypical purpose of the loan.

Lower rate of interest for the borrowers, due to a high competition between the lender’s borrowers enjoy a lower rate of interest for their loan.

Thus borrowers get a lower interest rate and lenders get a higher return from the system and it’s proven to be the most profitable way of financing.

P2P Lending Comes With Some Disadvantages Too –

Risk of low credit ratings, many times it happens that the borrower who applies for a loan has a very low credit rating due to which they are unable to take loans from any bank. So once the borrower receives the money the repayment of the credit within due time becomes a problem. So the lender has to be careful enough before choosing a potential borrower who can easily return the money back within due time.

There is no insurance or protection provided by the government side for such loans. This means that if there is any default from the borrower then there will be no one to take the liabilities of your loss.

Peer-to-peer lending is not available to all the lenders and borrowers due to some jurisdiction problems. So even if you are ready to start working in this system you may not be able to do so.

Advantages of P2P Lending Over Traditional Lenders –

In the last decade, we all have witnessed a tremendous change in the online community which has evolved the way we disseminate things around us. It has formed an integrated social networking system whose financial service has given birth to a peer-to-peer (P2P) financing system. In this system of financing the lender and borrower interact between themselves in the same platform through online mode of interaction.

The intermediating partner does not exist here as it is in the case of a bank. Two parties contact with each other directly. In the case of traditional lending borrowers always take a burden of higher interest rates which may affect the financial stability of an individual. But in the case of P2P lending lenders can choose their borrowers according to their wish and the borrowers can also negotiate the interest rates with the lenders.

Here, the borrowers get a cheaper rate of interest, and lenders get a higher return and the market makers get their fixed amount on a single deal. Thus everyone profits from the system. There are various P2P platform reviewing websites which can help you make a wiser choice of your provider. Check out the views expressed at Crowd Reviewed for various p2p platforms. Envestio review is a decent p2p2 lending platform that has received favorable reviews from clients and critics.

Some Crucial Benefits Of Peer-to-peer Lending –

P2P lending platforms have custom-made offers for all clients and customers. We are burdened with high-interest rates when opting for a loan from a bank. So what can be a better choice? The only better option that you can opt for is the P2P lending system. Peer-to-peer lending offers customized loan offers for your various needs.

Unlike a bank, a P2P lending platform offers unsecured loans. If you want to plan your wedding or plan your next trip, you can easily opt for a P2P lending system to seek a loan. P2P also offers the loan of a very small amount that may not be possible in any other system.

In P2P you choose the amount, interest rate, and tenure that suits your needs. The biggest perk for borrowers on a P2P platform is the shorter repayment time. While the duration of the loan offered by the bank is between one to five years, P2P offers duration of loan for a duration ranging from between 3 months to 36 months.