The Wonders of Peer-to-Peer Lending

For most of the past century, the only way to secure a loan - whether for a home, automobile, or personal use - was to go through a bank. While banks had the advantage of being able to pool large numbers of deposits before lending them out piece by piece, this practice often represented difficulties for individuals seeking a loan.

Banks required lots of detailed paperwork from borrowers and subjected them to strict credit rules. If an individual didn't pass an initial screening test, it was difficult to get one's case reconsidered. This left many deserving individuals unable to get loans.

What is "Peer-to-Peer Lending"

With all the trouble individuals faced the beginning of peer-to-peer (P2P) lending has been a godsend. The internet has helped change much of this, particularly through the use of peer-to-peer lending networks.

P2P lending networks serve to eliminate the unnecessary and cumbersome middleman role that banks used to fill. The general gist of peer-to-peer networks is that individuals seeking loans post information about the size of the loan they are seeking, why they need it, and what their professional background is.

On the other side, individuals wishing to lend money sift through the posts of those looking for loans until they find one that interests them. The potential lender and borrower then correspond privately, and information about the terms of the loan - including interest rate - and the borrowers' ability to repay the loan are discussed.

If both sides are content, the loan is processed between the two parties, and interest payments proceed from borrower to lender as planned.

Benefits

  • Cost
    Peer-to-peer lending provides several benefits to both borrowers and lenders. For one, borrowers are able to shop around for the best interest rate that they can find without having to rely on the policy of a large bank. Thus, peer-to-peer lending is a good way for borrowers to minimize the costs of a loan.
  • Security
    Similarly, lenders are able to personally speak with the people who will be borrowing money in order to properly gauge the legitimacy of the loan that they need and their ability to repay it.
  • Curiosity
    Peer-to-peer lending helps facilitate relationships by allowing borrowers and lenders to effectively collaborate on projects. Different lenders might have different fields that they are interested in, and they can find borrowers who are exploring those fields.

For example, if a lender is interested in helping the poor, he might lend money to someone who needs a loan to open a soup kitchen.

Conclusion

The internet has made the world more streamlined, and the realm of lending is no exception. Peer-to-peer lending networks have the advantage of bypassing large middlemen and putting lenders and borrowers in direct contact, which creates a more transparent and fulfilling process for everyone.

Interested in applying for a personal loan? Read our helpful reviews as a resources to help you find the best peer-to-peer lender for you.

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