Peer-to-peer lending, also known as P2P lending, allows individuals to obtain loans directly from others, facilitated by a website and eliminating the need for a financial institution acting as the middleman. It is also referred to as social or crowd lending.
P2P lending websites connect borrowers directly to investors. Each website sets the rates as well as terms and conditions, allowing transactions to be made. Most sites have a wide range of interest rates based on the credit worthiness of the applicants. Many P2P sites will have a wide range of interest rates, based on the creditworthiness of the applicants.
An investor will open an account and deposit a sum of money to be dispersed. Applicants create loan profiles which are assigned risk categories, determining the interest rate. The applicant can review offers and accept them, with money transfers and monthly repayments handled by the platform. This process can be entirely automated.
Risks of peer-to-peer lending