Peer To Peer Landing

What Is Peer-to-Peer Lending (P2P)?

Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Websites that facilitate peer-to-peer lending have greatly increased its adoption as an alternative method of financing. P2P lending is also known as social lending or crowdlending. It has only existed since 2005, but the crowd of competitors already includes Prosper, Lending Club, Peerform, Upstart, and StreetShares.

How P2P Works!

P2P lending websites connect borrowers directly to investors. The site sets the rates and the terms and enables the transaction. Most sites have a wide range of interest rates based on the creditworthiness of the applicant.

First, an investor opens an account with the site and deposits a sum of money to be dispersed in loans. The loan applicant posts a financial profile that is assigned a risk category that determines the interest rate the applicant will pay. The loan applicant can review offers and accept one. (Some applicants break up their requests into chunks and accept multiple offers.) The money transfer and the monthly payments are handled through the platform.

The process can be entirely automated or lenders and borrowers can choose to haggle.Some sites specialize in particular types of borrowers. StreetShares is designed for small businesses. Lending Club has a "Patient Solutions" category that links doctors who offer financing programs with prospective patients.

How P2P Lending Evolved

Early on, the P2P lending system was seen as offering credit access to people who would be spurned by conventional institutions, or a way to consolidate student loan debt at a more favorable interest rate. In recent years, however, peer-to-peer lending sites have expanded their reach. Most now target consumers who want to pay off credit card debt at a lower interest rate. Home improvement loans and auto financing are now available at peer-to-peer lending sites.

The rates for applicants with good credit are often lower than comparable bank rates. Rates for applicants with sketchy credit records may go much higher. For example, LendingTree.com offered rates from 6.95% to 35.80% as of the end of April 2019. Peerform posted rates at a range of 5.99% to 29.99%.

The average credit card interest rate was 17.67% as of March 27, 2019.For lenders, peer-to-peer lending is a way to generate interest income on their cash at a rate that exceeds those offered by conventional savings accounts or certificates of deposit (CD). Some sites allow lenders to start with an account balance of as little as $25.