Peer to peer (P2P) lending is the practice of lending money to unrelated individuals also known as peers without going through a financial intermediary such as a bank or other traditional institution.
Lending Club, Prosper and Kiva are known to be the world’s largest online peer to peer lenders. These popular online lenders are popular mainly because they have transformed the banking system to make it more efficient, transparent, and customer friendly. Other benefits that borrowers find alluring include: Easy access to online application, low fixed rates, fixed monthly payments, no hidden fees or prepayment penalties, and their terms are usually flexible. In the year 2014 ending in June, Lending Club and Prosper saw 195% growth generating more than $1.5 billion in loans.
Peer to Peer lending is known to be famous for the following solutions:
• Micro loans that normally deal with starting small businesses or for its upkeep
• Personal loans that are usually for car maintenance, debt consolidation, or weddings.
• Business purposes for entrepreneurs in need of expanding existing operations, or simply start-ups.
• Projects for those in music and film industries or projects that cannot be planned in a conventional way.
• Refinance credit card debt.
Peer to Peer services do provide a way for ordinary people to loan money to other regular individuals they have never met. In most cases, an intermediary is involved. The peer to peer sites facilitate the loans, which are funded in funded in increments of $25. Since the amounts are small, nearly anyone can afford to be a lender. Borrowers can take advantage of thousands of lenders on board and raise funds they would have not be able to qualify for. Peer to peer usually allows borrowers the option of choosing between three year and five year repayment plan. Loaned amounts may vary, for example, Prosper has a limit of $25,000 while Lending Club’s limit is $35,000.
Initially, the borrower does go through filling out the application and submitting it for approval. Peer to Peer lending is normally an all-or-nothing proposition for borrowers. If they do not reach their target funding, they receive no funds. This means that borrowers have to attract lenders. This can be done mainly by the applicant’s qualifications being met, prove that the resources are available for repayment. A successful operation from both ends will result in happy borrowers and happy lenders especially via the profits gained.
In conclusion, the entire process works as such: Customer fills out an application online, lender evaluates the information, determines the interest rate and presents a variety of offers to qualified borrowers. Investors have the option to select loans in which to invest and earn monthly returns.