Peer-to-peer lending has quickly become a popular way to invest in real estate and other assets, with many people seeing it as a safer option than traditional financial markets. Peer-to-peer lending (P2P) is a type of financial market where direct loans are made between individuals or businesses.
P2P lending allows banks and other traditional lenders to bypass the traditional credit approval process, meaning that borrowers can get loans faster than usual. Peer-to-peer lending is a type of lending where individuals or businesses borrow money directly from other borrowers. You can also know more about peer-to-peer lending via The Home Bankers Club.
Similar to traditional loans, peer-to-peer lenders offer borrowers an interest rate and a repayment schedule, but the main difference is that these loans are unsecured and distributed risk. Instead of relying on a trust relationship between lenders and borrowers, peer-to-peer lending platforms rely on the interconnectedness of their users to ages to create a trusted network.
When two people borrow from each other, they create what’s called a trust chain. The more people who use the platform and lend to similar borrowers, the better it can function as a credit rating system for individual loans and a currency for trade within the community. Since there’s no middleman involved in the transaction, both parties tend to get better terms than they would with traditional borrowing arrangements.
Since there are currently no formal regulations surrounding peer-to-peer lending, some platforms have been known to charge high interest rates and fraudulent practices such as preying on unprotected personal information have been rampant.