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Peer To Peer Lending: A Financial System That is Becoming Popular

Today, the borrowers are lucky enough because now they can easily get access to funds for a number of purposes including car loans, educational loans, microfinance loans,s or bridging loans by contacting the Peer to Peer lending platform. This alternative finance service is comparatively new to other services. It is progressing rapidly, and for most individuals, P2P lending has become a primary system for lending and borrowing money.

The concept of P2P lending revolves around a person giving a loan to another person. It is similar to lending money to your contacts. The Peer To Peer Lending platform serves as the intermediary between lenders and borrowers. It assists you in finding the borrowers.

The P2P system carries out all the necessary inspections on the borrowers, like soft credit checks, and manages the payment collection. These credit inspections are carried out to reduce the investment risk for the lenders. Their purpose is to grant fast loans to the borrower while giving the best possible interest rate to the lender. The P2P system assigns the interest rate to the borrowers by assessing their credit history and affordability. If they have a high credit rating, the interest rate will be low as there is lower risk involved.

Both the lenders and borrowers benefit from the system. The lender can invest in the Peer to Peer lending platform to gain profits on their income. At the same time, the borrowers can receive a loan at a rate lower than the banks, based on their risk profile.


Why P2P Lending is Gaining Popularity Among Borrowers

There are plenty of perks that borrowers can enjoy from P2P lending. The debt settlement is the number one reason why borrowers prefer it. Most of the time, the borrowers receive lower interest rates on debt settlement loans than any other type of loan. Also, by the end of the loan terms, the debt is entirely settled. Another reason why borrowers like P2P lending is that it is convenient to get a loan. For example, it can be difficult to obtain a microfinance loan from a bank when starting a business.

Also, if a bank does not approve your request, you need to search for a different bank to get the loan. It is not the case with Peer To Peer Lending. On the P2P system, you only have to post your loan request, and the lenders can easily reach out to you. So, thousands of lenders on the P2P platform can view your loan application. These loans are also affordable. However, the interest rate relies on your credit score. In comparison, a credit card company will typically charge around ten to twenty percent interest rate and that can reach as high as thirty percent. Moreover, the interest rate on P2P loans is constant, and it does not vary like credit cards rates.


Why P2P lending is Gaining Popularity Among Lenders

The lenders are also known as investors on P2P websites since there are ample opportunities to invest in the platform. So the first reason behind the lender’s preference for P2P lending is the profit. The return rate can be anywhere from six percent to nineteen percent. That is a very attractive return rate. Secondly, the Peer to Peer lending website takes plenty of precautions while screening the borrowers before approving their loan requests. They select those individuals who have low chances of defaulting. As a result, the default rate is close to two percent for most P2P platforms. That is low while considering that the loans are not secure because there is no collateral provided for safeguarding the investment. To ensure that lenders are not taking any unnecessary risk, P2P platforms require lenders to diversify their portfolios by giving loans to several borrowers.


Conclusion

Peer to Peer lending is a financial innovation that is beneficial to the world economy. It is gaining popularity among lenders and borrowers because of its good perks. The investors are satisfied to lend money because they receive higher returns. The borrowers also prefer this system because they can easily settle their debt and receive loans at low-interest rates. Thus, the P2P system is offering benefits to all the key players involved in the process. The Peer To Peer Lending trend will continue to grow in the future because many people are discovering this system and gaining advantage from it by making investments and obtaining loans. That is low while considering that the loans are not secure because there is no collateral provided for safeguarding the investment.

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