Peer to Peer Lending: All You Need to Know

 Peer to Peer Lending, How it Works, and Benefits

    There are two approaches to the peer to peer lending concept, namely: as a borrower, or as a lender (Lender).

Whatever you are in terms of peer to peer lending, these two roles will provide you with distinct benefits in financial terms.

The P2P lending system itself is not without risk.

Just like any other financial activity, you still have to be careful in carrying it out.

However, as long as you understand how the system and how it works, you should be fine.

The following is all you need to know about peer to peer lending.

What is (Peer to Peer) P2P Lending?

Peer-to-peer (P2P) loans are a way for people to lend money to individuals or businesses.

You (as the lender) receive interest, and you get back your money when the loan is repaid. But P2P loans can be much more risky than savings accounts.

How Peer to Peer Lending (P2P Lending) Works?

As a Lender

Lenders or investors can see detailed borrower data, such as the type of business, how long the business has been in operation, the purpose of the loan, income, financial history and so on.

This is called the P2P Lending marketplace, because lenders can see and then choose what loans they want to fund, along with the tenor, interest rate, and risk of each loan.

When you want to fund a loan of choice, Lenders can directly distribute some funds.

After that, the borrower will repay in installments or at the end of the tenor.

From there, the lender gets the benefits of principal and interest.

The interest rate will depend on the interest rate on the loan being funded. (forbes.com)

As a Borrower

The borrower only needs to upload all the documents needed to apply for a loan online.

Among them are documents containing financial statements for a certain period of time, and also your purpose for applying for the loan.

Your loan application can be accepted or rejected, depending on a variety of factors.

If your application is rejected, then you have to fix everything that was the reason for your application being rejected.

If your loan request is accepted, the interest rate for the loan will be applied.

After that, your loan application will be included in the marketplace.

That way, all lenders can see your loan application and finance it.

When funding has been collected, loan funds will be sought.

Website of Peer to Peer Work Like Marketplaces

They match people or businesses who wish to lend money with those who wish to borrow.

It is a way for borrowers to obtain funding without going to traditional sources of finance, such as banks and community buildings.

On some websites, any money you lend is automatically divided among the many borrowers, but with others, you can choose who you want to lend your money to.

Interest rates for P2P loans are usually higher than those offered by traditional savings accounts. In general, the higher the interest rate a person is willing to pay, the higher the risk that they will not be able to repay the loan.

Getting Started with P2P Loans

If you need to lend money, compare between P2P lenders, and find one you are comfortable with.

There are three main steps:

1. Open an account with a P2P lender and pay some money by debit card or direct transfer.

2. Set the interest rate you'd like to accept or agree on one of the rates that's on offer.

3. Lend an amount of money for a fixed time period – for example, three or five years. You may have to pay a fee to lend money (i.e. 1% of the loan). Some lenders have an 'autobid' feature.

This means you can set limits on how much you want to lend each business and the lowest interest rate you're ready to lend at.

Is Peer to Peer Lending the Right Option?

Of course, this will depend on your financial needs.

For Borrowers, peer to peer lending is the right means to get loan funds quickly.

P2P Lending can be an alternative when borrowing in conventional financial services is too complex.

Loans in P2P Lending, usually also without collateral.

So, it's perfect for those of you who don't have assets to pledge as collateral.

For Lenders, peer to peer lending is an excellent alternative for developing funds and investments.

What's more, if you have more funds that you want to develop, but don't know where to allocate them.

The initial capital for funding in peer-to-peer lending tends to be small.

Not only that, by funding loans in P2P Lending, you can also study investment fundamentals.

Why? because P2P Lending has the same basic principles. Where do you have to do an analysis of the loans that you want to fund?