Social lending existed from time immemorial. It gained popularity, much before the banks existed. This has taken the form of communal lending now and is becoming a major source of loan for people who need money. Our economic times are shaky and the various other sources of small loans are drying up. There are various websites which connect person to person through a streamlined network. These networks are legally formatted, efficient and most importantly very helpful. P2P lending is getting more attention as borrowers are looking for investors to invest in their small businesses or help them by providing loans for some other purposes.
Why P2P lending?
The most important reason for using P2P lending was financial gain. It is emerging as a very popular mainstream-lending platform. One of the primary reasons for this outcome is that the banks often charge hefty rates of interest on the loans. They also have additional service charges on them. The online loans taken from a social lender often have lower interest rates. Recent studies have indicated that the banks are continuously trying to push up the fees.
- The social lending sites offer easy loan terms as against banks and their sole aim is to make the loans available without the unnecessary hassles of having a bank or a middleman in between. It also becomes an alternative vehicle for investment.
- For lenders also it’s a beneficial tool as P2P lending provides higher returns than the conventional methods.
- The lower interest rate is due to the fact that there is no middleman involved in the entire transaction. The borrowers and the lenders are allowed to decide upon a mutually agreeable interest rate.
- The lenders also come to know about the profile of the person whom they are lending money and why they need the money. They can also enjoy returns, which are much higher than other forms of investment.
The peer to peer sites, often offer loans for the following purposes:
- Home Improvement Loan
- Personal Loan
- Car Loan
- Consolidation Loan
- Flexible Loan
- Short Term Loan
Why P2P loan is considered important?
P2P loan is considered to be an important investment vehicle because the loan is taken on a short term basis, specifically not more than 3 years. Also, such platforms approve loans quickly and are mostly funded within just a few days time.
This is the reason why these loan borrowing trends are being fast capitalized by several companies as well as individual borrowers.
P2P lending is an investment and lending vehicle for quick personal loans, which is not only approved by the authority but also has an entirely dedicated regulatory class. P2P lending has already gained a firm foothold in the credit markets and is projected to go double in the next few years. As the credit markets are restricting lending now, more people are turning to this industry to meet their needs.
How does P2P lending work?
Peer to peer lending involves a borrower submitting an application for a loan and the lenders select the ones they want to fund. The lenders then consider the credit risks and the other factors to pick a specific loan. The risks of lending can also be distributed among several lenders. The final process may slightly vary between different P2P lending companies, but the basic steps remain the same.
The P2P lending process makes loan easier and less scary for people. The process of diversification for investors helps them to acquire risk optimized returns. Before investing in any social lending platform you should always research about the various factors involved such as EMIs, interest rate etc.
