An Insight into Peer-to-Peer (P2P) Lending

Peer-to-peer lending, also known as P2P lending, crowdlending, or social lending, allows borrowers to connect directly with lenders, bypassing the middleman normally involved when utilizing traditional banking systems. In a P2P lending scenario, lenders are typically referred to as “investors,” who loan money to qualified applicants. The intermediary website (P2P platform) usually sets the rates and the term for the lending agreement, and once the terms are agreed by both parties, the transaction will be facilitated. To better understand P2P lending, it’s important to have a firm grasp of the traditional banking model. Typically, if you want to take out a loan, you must fill out a loan application and submit it to the bank. The bank will then assess your creditworthiness and any other factors they deem relevant before deciding on whether or not they will grant you the loan and the terms you will be offered. Once terms have been agreed, the bank will then source the capital from either the central bank or from the savings deposits of their other banking customers. There are a few challenges involved with this method: Banks generally operate with a strict risk management strategy, which automatically disqualifies those with poor credit or a lack of credit history. Banks usually offer poor rates and often apply fees to the total loan value, which increases the price of repayments. The traditional banking system can be slow due to...