Peer to peer lending is commonly known as p2p lending. It breaks down the long procedure of lending and borrowing money by directly connecting two individuals for the purpose of lending and borrowing capital. P2P lending connects two individuals, perhaps family and friends, allowing you to loan money online and easily excluding the financial disturbances created by banks and other lending organizations.
Peer to peer lending can help the individual lender and also help the borrower with low-interest rates as compared to any other banks and capital lending companies. Let’s look into a detailed study of p2p lending types –
Peer to peer lending is the derivative of independent business, advanced technology, and the latest lifestyles of humans. These also include –
- The latest trend that dominates today’s society of starting something independent has promoted p2p lending. Most youths nowadays don’t really like to work under any company. Instead, they prefer to start their independent businesses or companies. Freedom has a new definition in the new era. So people’s mindset has started to change; we believe in people rather than banks.
- Technological advancement, globalization, and the changing phase of the market have completely changed the scenario of the present market. It has functionally reduced the role of business intermediates in prominent industry sectors.
- The latest trend of “Mass collaboration” has played an important role in bringing this new era. Through mass collaboration new individuals in the market can work together in groups to achieve success. Social networking sites like Instagram can be a good example of mass collaboration.
- The increased value of time has also changed many things. Busy schedule throughout the day force us to choose the shortest and quickest path to achieve anything. Check out the critical reviews of a p2p lending firm at Crowd Reviewed.com, before investing it. In order to the cut down the long procedure of lending and borrowing money people mostly preferred p2p lending.
Like every lending procedure peer to peer lending also has different types.
Getting started –
Here is how p2p lending functions in a real system. Your first step is that you sign up on the p2p official website then you become a member of the peer to peer lending system. This acts as an arbitrator to keep records and transfer funds among other members. The company will earn its revenue through the charges obtained from both the lender and the borrower.
Details of the borrower
Before you can start borrowing, the p2p lender will carry out several checking procedures before lending you anything. Once you get accepted you will be given two or three choices to choose from.
The p2p lender will present you five or six risk classifications and then you can borrow at the present market rate for your risk classification on the same day.
You can also put your loan for auction to those who have the funds to lend you. The interested lenders will check out the information that you have provided in your p2p profile. The information will consist of the purposes for your loan, your economic history, the story of your life, your personal stuff, or even your creations. At first, you can put an interest rate by yourself from where the bid will start. Once your loan is funded then the lenders can bring down the interest rate to earn the chance to lend you money.
Details of the lender –
Being a leader in the P2P lending system, you do not only take part in biding or funding individual loans you can also let the P2P lending company distribute your funds among various borrowers.
Some pros and cons of Peer to Peer lending companies are –
Special benefits of P2P lending for individuals are –
- Both lenders and borrowers get sufficient financial profits from P2P lending. Lenders get a much higher interest profit than banks. And on the other side, the borrower will also get a much lower interest rate than banks. This shall ensure that both are mutually profiting for the system.
- The lender is always curious to know about the complete details of the borrower such as his financial stability, the purpose of borrowing the money, and many more. It’s done only for the self-satisfaction of the lender and also so that the lender can choose his/her borrower. It allows them to lend money to the one they believe can pay back the full loan on time.
- Charity can play a big role for borrowers too. If the financial condition of the borrower is not very good but his/her life story is so inspiring and meaningful, it shall ensure that the lender gets a note of the guy and allows him to borrow capital for a reasonable purpose.
- After working for a considerable time in peer to peer lending sites. There seems to be have emerged a community-building system. It means that people who are very active in sharing their experience in lending and borrowing the capita,l they are more likely to get the loan funded very fast.
- Even in some case both the borrower and the lender hates the bank protocol. So it is an ideal system for them too.
As they say that every coin has both sides, the peer to peer lending also a darker side which you must know before you start your journey in the P2P lending system.
The downside of the system is –
- Many borrowers get excluded from the site due to their poor financial conditions. So it is not sure that even if you pay the required fees and fulfill all the criteria for borrowing, then you will get your demanding capital. Still, you can be rejected due to some conditions.
- Even lenders face casualties in the system due to their uninsured funds. The lender may even be held as a defaulter for making a bad loan with a good sob story.
- You may think that the working system of P2P lending will be easy and comfortable compared to a bank. But sometimes even the P2P lending system may harass you more compared to a bank protocol. It occasionally occurs if the loan is applied through auctions.
- Everyone may not be enthusiastic to publish their personal stories on the internet in front of everyone. Some people may not like to compromise their privacy for lending and borrowing money. Then, in that case, the bank will be a better option for them to seek a loan.
- Since the P2P industry is new, so the stability of the companies providing the service may not be assured. There is very often a change of rules and criteria that may harass both the lender and the borrower. Sometimes the best working experience may turn into a trouble for you.
Even after some of the drawbacks of the system. Still, in my point of view, it is still one of the best thing systems for both the borrower and the lender. In the coming days with more stability and experience, peer to peer lending system has the potential to give you the best experience ever.