Peer-to-Peer Lending

peer-to-peer lending

You lend money directly to creditworthy borrowers (individuals or business) through online services which match lenders with borrowers. This is referred to as peer-to-peer lending.

Since most of these p2p loans services are found online, the rate is usually cheaper than traditional financial institutions.

In peer to peer lending, both parties benefit in a way. The borrower benefits from low cost loans while the lender earns interest. This is an increasingly popular alternative to investing.

How it Works

  • Create an account
  • Borrowers choose a loan amount, choose their rate and post a listing
  • Investors review the listings and choose to invest in one meeting their criteria
  • Borrowers make monthly payments
  • Investors watch their money grow as they receive a portion of these payments into their accounts

Protecting Your Privacy

Peer to peer lending sites may sometimes attract fraudulent individuals posing as investors. It is thus vital for a site to ensure borrowers are protected from such ones.

Prosper is one of the most recommended sites offering p2p loans while protecting borrowers as well as investors. A borrower’s actual identity is hidden while an investor is protected against fraudulent borrowers through the ID Theft Guarantee.

Comparing P2P Loans and Personal Loans

Peer to peer lending sites are offering a new choice for most consumers in the U.S who typically had to choose between credit cards or personal loans from banks and finance companies. Some of these choices prove to be expensive to some.

Peer to peer personal loans are usually short term in nature (3-5) years and are offered by individuals. The loans have no collateral, so there is no risk of losing a property in case of missed payment.

However, personal loans are offered by lending sites which may keep their costs a bit higher than P2P loans which are low in costs since they are offered via the internet through intermediary companies as opposed to direct lending.