Peer to Peer Lending: Facts you Should Know About It

The Peer to Peer lending industry is continuously progressing with new P2P platforms emerging in the market over time. P2P technology is becoming popular because it is simple to use. The interest rates are suitable for both the lenders and borrowers, and the loans are offered at easy terms. Investors can lend money to earn a steady monthly income. The borrowers can get quick access to money that the banks or other financial institutions do not provide because of strict policies. So, the P2P platforms are taking the place of the banks for lending loans to individuals and businesses. On the P2P website, borrowers can obtain various loans ranging from microfinance loans, educational loans, car loans and mortgage loans to debt settlement loans. Since P2P lending is offering profits to the investors and fulfilling the requirements of the borrowers, you might be attracted to try it. That is why we take this opportunity to provide you with an overview of peer-to-peer lending facts that you should know.

How do P2P Platforms Run and What do They Provide?

Peer to Peer lending is a technology that links individual borrowers who require cash with the investors who prefer to lend them money. The P2P platform serves as a broker or market hub that connects borrowers to lenders. Individuals can become members of a P2P website by registering on it. They have to pass through the verification process by providing all the necessary information. To complete the registration process, they have to pass a risk assessment test and pay a specific registration fee. After the registration, lenders can connect with enlisted borrowers. Also, the borrowers can connect to the lenders. Some P2P platforms can automatically provide lending offers to the selected borrowers that meet the lending conditions whereas, other platforms facilitate the borrowers in finding loans manually.

All loan applications are served after the Peer to Peer lending platform receives them, serving the ones first that come first. The interest rate can be from ten per cent to twenty eight per cent. The loan time may extend from three months to thirty six months. After the lender and borrower agree to the loan terms and conditions, they digitally sign a contract. The cash is then deposited in the borrower’s account. After that, the borrower pays it back over the pre-decided time.

How are the Borrowers Assessed?

Peer to Peer lending platforms assess borrowers according to their credit score. Also, they perform plenty of verifications to evaluate their creditworthiness. Besides standard verifications based on employment and income, they apply tech-savvy methods to determine borrowers’ spending habits by inspecting their social media interactions, app utilisation, and many other factors. As per the information gathered, borrowers are allotted different risk buckets according to their creditworthiness. That acts as criteria for deciding the loan tenure and the amount of loan that the lender can grant to the borrowers. In addition, some platforms enable lenders to make a suitable interest rate offer.

P2P Platform Regulations

Governments all around the world are taking action to regulate P2P platforms. For example, Peer to Peer lending platforms must register with a license for some governments. That makes it legal for them to carry out transactions. The regulations will govern how the P2P platforms will work and apply specific standards that they must practice.

Conclusion

The Peer to Peer lending sector is continuously growing with new P2P platforms that are arriving in the market over time. P2P technology is becoming famous because it is easy to use. P2P lending is a technology that matches the individual borrower to the investors. The platform serves as a market hub between them. The P2P platforms assess the borrowers as per their creditworthiness. They check social media interactions, app utilisation, and other analytical variables to determine borrowers’ spending habits. These checks provide them with a perfect assessment of borrowers creditworthiness. The borrowers are then assigned the risk level as per their profile. The Peer to Peer lending platform or lenders then decide on the loan amount and loan tenure based on these borrower’s profile.