What Is P2P Lending?

As the name suggests, the term can refer to any form of money exchange online even you lending money to your friend online is a form of P2P. However, what makes P2P different from traditional lending methods is that this form of lending does not involve financial institutions as intermediaries.

While this form of lending seems easier with the elimination of the middlemen, P2P involves more time and risk than the conventional lending style. Peer to Peer lending is also sometimes referred to as social lending. Let us try and understand how this form of lending works and how it has risen in prominence. You should select a best P2P Lending Platforms for Peer To Peer Investing.

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P2P Lending works on the fundamental idea that both the lender and borrower get better rates in the money exchange. The borrower gets the opportunity to borrow money at a lower rate, thereby paying lesser towards interest while the lender gets a better interest rate than what a savings bank account would offer. This win-win scenario has helped P2P lending establish itself as a prominent platform for money exchange.

Coming to the question of how P2P Lending takes place, certain companies facilitate lenders and borrowers to perform transactions online. These companies connect lenders with potential borrowers and charge a certain fee for providing the service.

Besides providing the platform, they also perform a credit check on the borrowers. Even after the peer-to-peer companies take a certain percentage as a cut, lenders and borrowers are exposed to better deals than savings and investment instruments offered by financial institutions.

In P2P platforms, money is also lent to businesses. The loans are mostly unsecured, but at times, secured loans are provided by way of using assets such as vintage cars, jewelry items, buildings, fine art and other types of immovable assets as collateral.

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