Peer-to-peer loan is a loan between individuals. This loan form is one of our oldest, but it is one of the loan forms that most people know least about.
Below we go over what it means and what benefits there are, for you who are thinking about it.
A loan with many names – meaning
As previously mentioned, loans between individuals have several names today but with the same meaning. These can partly be the headline’s peer-to-peer loans, but also peer-to-peer loans, p2p loans, peer-to-peer lending, marketplace lending, crowdlending and many others. Instead of borrowing from a bank or other lending institution, you borrow directly from other people through a marketplace.
This marketplace acts as an intermediary between you and those who may be able to grant you a loan. You can also become one of the lenders and thus earn a sum on occasion.
The process may look like the following:
- Compare and find a marketplace that offers the peer-to-peer loan service.
- As with a bank, you choose the desired loan amount and repayment period, and submit an application.
- The marketplace (the company) performs the usual credit information on you and then decides the interest rate.
- Now other people have the opportunity to lend you money.
- Everything is handled legally and via contract.
As you can see from point 3, there is still a credit assessment on you, which is a requirement no matter what loan you apply for. However, you should not confuse loans of loved ones with a peer-to-peer loan. The term peer-to-peer refers to a loan between private individuals that follows similar principles to a regular bank loan.
This is another loan option for those who want to borrow money relatively easily. We should also note that a peer-to-peer loan is an unsecured loan, a blank loan. In other words, you use the money for exactly what you want. However, the amount offered is usually smaller and the payback time shorter. It is also interesting to know that the lender’s money is spread to different borrowers, not just one. However, you who lend will not notice any direct difference and you handle the loan in exactly the same way as with a bank.
Benefits of peer-to-peer loans
Peer-to-peer loans have taken huge strides in recent years and are today one of the fastest growing loans in the market worldwide. Not only does this mean that banks and other lending institutions no longer have a monopoly on the market, it also strengthens the opportunities for people to invest.
Today, you not only have a desire to share ideas, homes and things, but also money. For those of you who want to borrow, it gives you the opportunity to compare and access more opportunities around loans. It is digital, so it is often very quick to apply and get answers. For those who want to lend, it can serve as an alternative to a savings account, shares or funds.
You earn interest on those who lend to you and it works almost like your own bank. However, you yourself face the risks which can be a disadvantage.