Peer-to-Peer (P2P) lending, also known as crowdlending, involves individuals lending money to, or borrowing from, other individuals without any direct help from traditional financial institutions, involving lenders, borrowers, and the technology platform in between. This form of lending has been able to bridge the gap left by traditional lenders, such as banks, who are often unwilling or unable to lend to certain borrowers with less-than-perfect credit histories.
P2P lending platforms in the modern age will connect borrowers and lenders directly and teaming up, often facilitated by online technology platforms or apps. Platforms like these provide a way for potential borrowers to submit loan applications, and for potential lenders to view the loan applications and make their own decisions on whether to lend to the borrower and how much to lend, or offer to lend.
For lenders, P2P lending offers the possibility of higher returns than a traditional savings account due the added risks associated with lending to someone with a less than perfect credit history. Because lenders have the ability to select which kind of borrowers they wish to lend to, they have the power to control their risk and can opt to spread their funds amongst varying levels of risk, as well as limiting the size of their investments.
For borrowers, P2P loans offer more comfortable terms of loan repayment over longer periods than those available with payday loans and often at less interest, so people are more likely to manage their debt. This gives people with financial troubles the opportunity to rebuild their finances and give them back their financial freedom, without the burden of taking out loans they may not be able to easily repay.
The advantages that P2P lending has over traditional banks are numerous. Not only does it offer a chance for lenders to receive higher investment returns, but for borrowers it offers the ability to apply for loans at lower rates, often with more flexible terms. Additionally, the cost of the transactions for the borrower can be less for individual lenders than for a bank, as the lenders do not have to pay the extra fees associated with traditional banking such as collateral, processing, or closing costs.
The success of P2P lending can largely be attributed to its accessibility. Not only does it provide its lenders and borrowers with a secure and convenient way to compare loans, but it also offers a less daunting loan request process as the loan is not reliant on the whims of a bank manager. This ease of access has made it popular among those with bad credit, as well as people who are uncomfortable with entering the traditional banking system.
In conclusion, peer-to-peer lending is a form of lending that has taken off in recent years as a viable alternative to traditional banking. It provides consumers with an easier and more convenient way to obtain a loan, often with lower interest rates and better repayment terms. It also provides lenders with the ability to control the amount of money they are lending and the risks they are taking on, and the potential to receive higher returns on their investments.
