Peer-to-peer lending is a type of debt financing wherein lenders and borrowers enjoy the control and freedom over the terms of a loan. There is no intervention of the intermediary financial systems. Simply, it is the term used for defining the practice of lending money by individuals with the help of services that connects the borrowers and the lenders directly.
The core concept of peer-to-peer lending has been in practice for a long time now, in terms of social funding. Often we take the help of our friends and relatives in terms of financial crunch. The same thing is encouraged in peer-to-peer lending, where fellow members support each other. The only difference is that the lenders and the borrowers meet online with the help of a dedicated platform.
Looking at the various options available in the marketplace and the ever-growing community of the borrowers and the lenders, this concept is expected to reach newer heights. The platforms which provide facilities for peer-to-peer lending vary in their way of delivering services to the end-user.
The platform which you may want to choose depends upon the following factors:
• Networking: Some of the platforms match the borrowers and the lenders themselves and influence the process. This reduces the scope of selecting borrowers or lenders.
• Commission: Some platforms have the business model that defines the earning based on the money which flows through their domain. They restrict the payments to be made through their transaction facilities.
• Flexibility in lending and borrowing options: Some of the platforms disburse loans very easily while others make the process a little complicated. In some cases, even the interest rates might be restricted within the specified ranges.
The worldwide lending industry is a multi-billion dollar industry where people can borrow money from banks, other financial institutions and private lenders. The lending industry has certainly undergone an evolution and has paved the path for social or peer-to-peer lending, as a promising way of lending.
Now, the question that many of you would ask is whether the P2P loans offered at the social lending sites are worth it? The answer is yes. There are many positive aspects of digital loans. There are no banks, no middlemen and no long procedures. To top it all, the entire process is transparent for both the borrowers and the lenders.
The main objective of these social lending hubs is to offer online loans with the best rates of interest. The customers or the borrowers are given a feeling that they are borrowing the money from a community or a friend. This peer-to-peer lending & borrowing is considered in a new light now and has become an integral part of investing or borrowing loans.
Advantages of becoming a lender
A p2p lender enjoys certain other benefits from these platforms.
• Creation of a new class of asset: Lenders on any of the peer to peer lending hubs can take the advantage of asset class which they can add to their portfolio as it does not come under any savings account or an investment.
• Active community participation: One of the salient features of these lending sites is that it makes the borrowers feel that they are taking the loan from a person and not from any organization. Thus there is a development of a strong community feeling.
• Choosing the rates of interest and loan repayment: This is another advantage shared by the lenders. There is a freedom and flexibility which the lenders can enjoy in terms of choosing the rate of interest as well as the period.
• Low investment risks: The lenders can enjoy low-risk investments as often the profiles of the borrowers are thoroughly checked before the money is spent. Another advantage is that the lender can choose to distribute his loan amount with other lenders, not bearing the risk all alone.
Keeping all these in mind, a huge number of players and MSME digital lending are showing growth. They are expected to grow to $80-100 billion in their annual lending process. New P2P lending start-ups are also occupying the market.