Peer-to-peer lending , or P2P for short, was established in the early 2000s as a form of social lending that connects investors with small businesses or individuals directly. For many investors, it’s a popular alternative to traditional lending options because it often results in above-market returns. That said, P2P lending does come with its share of risks. Before you invest, here’s what you need to know.
What Is Peer-to-Peer Lending?
P2P lending is a form of financing that allows consumers or small businesses to get unsecured loans from investors without the need for a middleman or traditional financial institution. It is sometimes referred to as social lending, crowdlending or peer-to-peer investing.
With P2P lending , individual investors use a P2P lending platform or site to fund full or partial consumer loans with an expected return on their investment. The platform establishes the terms and rates of the loans in advance. Usually, these rates are more favorable for both the investor and the borrower than more traditional lending methods.
People who need money but won’t qualify for a credit card or loan through a traditional bank or credit union ?- or they just want a better rate ?- often choose a P2P lending site instead. The platform usually handles everything from underwriting the loan to distributing the funds and collecting payments. Read more
