Making peer-to-peer loans or P2P financing on online platforms is currently one of the alternatives for those who do not have access to banking and financial means. The fact that many of us at some point in life needed or need to borrow between individuals or money from friends or family instead of going to a bank.
This procedure is the simplest and fastest there is, it does not require collateral and often the “loan” comes at zero interest rate. In the peer-to-peer (P2P) loan we can say that it is similar, but it happens on a much larger scale and the people who lend you are not your friends – they are investors. Although peer to peer loans are not interest-free, the fee charged on operations are much lower than those charged by other private lenders.
What is P2P lending? Refers to unsecured personal loans that occur on online platforms, the most interesting is that it “does not have” the involvement of a bank or a financial company. While a bank acts as a lender and deposit holder, in the peer to peer it lends money to individuals and companies mutually, a lender (P2P investor) simply provides loan to the borrower requestor all together in a same online platform created so that they can negotiate together.
It seems to be collective financing?
Not exactly. In peer to peer loans, loans carry interest, but in the case of collective funding (crowdfunding), money is provided as equity capital for a business or as an interest-free donation. In P2P loans, lenders and borrowers must register on the platform and go through a verification process. The platform needs technological mechanisms for analysis and also information from credit agencies to evaluate borrowers.
Every investor and borrower can handle various credit applications. In fact, many P2P lending platforms do not allow an investor to finance more than a certain percentage of a single contractor to avoid and minimize credit risk.
Once a solicitor and an investor agreed to an offer, they entered into a peer to peer loan agreement or (intercompany loans). Overall, each investor’s money goes into a blocked account managed by the platform. The loan is released after the legal formalization of the operation and agreed on how to collect the amount of installments that will be repaid monthly.
Why is peer-to-peer important?
P2P loans are emerging as a major alternative source of cheaper financial resources for people, small and medium-sized businesses and micro-entrepreneurs (particularly small ones) who may not be able to borrow from the big banks.
Like fintech’s advancement in the peer-to-peer segment, and lacking physical presence and a large number of employees, online platforms are able to handle low-cost interest-bearing credit operations.
How important is peer to peer fintechs?
Simple! For those who want to get some money quickly financed for a small, medium and for micro-entrepreneurs or for some personal need (personal credit), but that does not have to give guarantee, at that moment the platforms of peer to peer are the most recommended for borrowing low-interest loans and financing, and little or no bureaucracy.
Peer to peer for negative?
The fact of being negative does not prevent the platforms from releasing peer-to-peer loans both for companies in these conditions both for individuals, however, most creditors do a credit and risk analysis and may not be released or find some investor who wants to take the risk. However, there is nothing that will prevent a person from being denied or restrictive company trying to finance or loan peer to peer.
Peer to peer for those who want to invest
As an investor, you may be tempted by the incredible returns that P2P lending platforms offer, but remember that it is an investment that has risks and depending on the platform these risks may be higher than others. Even in countries where p2p loans are regulated, there is no monetary protection provided to investors in the event of default.
But if you are in a peer-to-peer lending network, either be a conscious investor or a borrower who completes your commitments with your lenders.