Peer to Peer Lending (P2P Lending) is a method of lending money to individuals or businesses and vice versa. Apply for loans to lenders that connect between lenders and borrowers or investors online.
Peer to Peer Lending (P2P Lending) allows anyone to provide or apply for loans with one another for various purposes. However, you don’t need to use services from legitimate financial institutions as intermediaries.
Basically, the P2P Lending system is very similar to the online marketplace concept, which provides a place for meeting buyers and sellers.
In the case of P2P Lending, the existing system will bring together the borrower and the party giving the loan. So, it can be said that P2P Lending is a marketplace for lending and borrowing activities.
Rather than applying for loans through official institutions such as banks, cooperatives, credit services, government and so on, the process is far more complex. As an alternative, the community can apply for loans supported by ordinary people using P2P Lending systems.
How Does Peer to Peer Lending Work?
As a borrower
As a borrower, all you need to do is upload all the documents to apply for loans online (which is relatively fast in the process). It includes a document containing financial statements within a certain period of time as well as your purpose in the loan.
Your loan application can be accepted or rejected, of course depending on various factors.
If they reject your application, you must correct all the reasons for rejecting your application.
Then, if they accept it, the loan interest rate will be applied and your loan application will be included in the available marketplace so that all lenders can see your loan proposal.
As an investor
As an investor, you will have access to browse loan application data on the dashboard provided.
You also can certainly see all the data regarding each loan proposal. For example, relevant data about the borrower such as income, financial history, loan objectives (business, health, or education) along with the reasons, and so on.
If you decide to invest the loan, you can directly invest some funds after making a deposit according to your investment goals.
The borrower will repay the loan funds every month. Furthermore, you will get benefits in the form of principal and interest. The amount of interest will depend on the interest rate of the loan invested.
According to investopedia.com, P2P lending boosts returns for individuals who supply capital and reduces interest rates for those who use it. However, it also demands more time and effort from them and entails more risk. Therefore, you have to be understand it before try to use it.
Be careful, fellas!
Read more: 3 Types of Investment for Beginners
