P2P lending is nothing but a way to allowing customers and novice entrepreneurs to access capital through the internet. It is similar to, taking a loan out from the bank, here the bank will be one of your peers.
P2P lending really helped a lot of small entrepreneurs who are looking to borrow money and to open up their new business. In this article, let's get to know what P2P lending is and how P2P lending works.
PEER-TO-PEER LENDING
Peer to Peer lending is a platform that connects a borrower who is seeking a personal loan from an investor. The investor can earn higher returns from their investment than conventional banking systems in P2P lending channels.
Verified borrowers are listed on the P2P lending platform to enhance the security of assets. Investors can see all the details about the borrower before lending money.
P2P lending is almost like taking a loan from a bank. The only difference is instead of lending from the bank; you will lend from an investor directly.
Now let's get to know how P2P lending actually works.
So the first and the foremost thing that you have to look after before lending or borrowing is that you need to have a user account in the P2P lending platform. There are various lending platforms you can find in the financial markets such as funding circle, lending club, etc...
Steps followed by the investors
If you are an investor, open an account on the P2P lending site and deposit some amount of money. The lending platforms have some qualifications like, who can and cannot invest for loans. Once the admin of the P2P lending channel verifies the details, you will be approved as an investor.
Every investor has to choose which type of loans you want to invest in like business or personal loans. Once the formalities between the lending platform company and investor are done, then investors can start investing money with their peers.
Steps followed by the borrower
If you are a borrower, then the first agenda is you need to apply for a loan through a lending platform.
The investors will approve your loan and propose to you the interest rate and the loan terms. Sometimes it can be a single investor, or even multiple investors can fund your loan. In cases of multiple investors, your interest will be divided among them.
The investors gain profit from the borrower interest rates, and the lending platform company also charges a small fee for the transaction.
How are peer-to-peer loans used for?
As I stated earlier, P2P lending platforms help small businesses to increase their revenue.
Here are some types of loans that have been offered by lending platforms.
- Small business loan
- Debt consolidation
- Home improvement
- Medical care
- Military loans
- Personal loans
- Auto-refinancing
Upshot:
This is all about P2P lending. I hope that blog post was useful for people who are about to start a small business but do not have any idea about where to lend loans.