What is Peer-to-Peer Lending?


Before approaching banks and other lending institutions, people are more likely to borrow from friends or relatives first. It is a great way to gain some easy cash without having to sit through formal loan applications. However, it does have a lot of cons. If unpaid, your relationship to your “lender” is forever soured. In fact, a lot of relationships have been severed because of unpaid debts.

Peer-to-peer lending is the perfect compromise for people who feel like lending institutions are too formal, but don’t want to risk borrowing from friends and relatives. The bank is left outside the equations and it’s just you, the borrower, and the lender, another individual, involved.

Benefits of Peer-to-Peer Lending

One of the biggest benefits in engaging in peer-to-peer lending is lower interest rates. The reason why banks charge such high lending rates is because they have to think about overhead. Since individuals don’t have to worry too much about overhead, costs for that is taken out of the equation, resulting in lower rates.

Also, there are a lot of individuals offering peer-to-peer lending. While banks and other financial institutions have their reputation and experience to rake in clients, a random guy over the Internet might not have the resources to market himself to potential borrowers. This is why a lot of borrowers are competing for borrowers by offering great deals and lower rates.

Security used to be a problem with peer-to-peer lending, as most people felt hesitant about borrowing money from someone they don’t know. However, there are now a lot of websites that offer peer-to-peer lending services. These websites act as a platform for borrowing and lending under a secured server. You can look at a lender’s profile to see their feedback and reviews.

The same rules apply, though, when it comes to eligibility. If you have good credit, you can apply for an unsecured loan through peer-to-peer services. However, if you have bad credit rating, you need to put something up as a guarantee, like your car or home. A lot of peer-to-peer lenders are partnered with legitimate lending establishments if you neglect to pay your loan, these lenders will report you and you’ll get a negative mark on your credit score.

Your best bet is to find lenders through peer-to-peer lending websites because that’s where you can find the most options regarding loan payment terms, customer service, and payment methods. Because of how sophisticated these peer-to-peer lending websites are, it’s as close to the real thing as you can get.