What is Peer-to-Peer Lending?

Introduction

Have you ever taken a loan from a bank? Was it easy? Most probably not, because when you apply for a loan in a bank there are certain conditions. You have to fulfill all the criteria of that particular bank in order to get the loan. They look at your credit card score, your income, and other things. You can get online loans but most of them are also given by banks. So what do you do when you need a loan quickly? No idea? Fortunately, there is a new type of service that offers loans to people called peer-to-peer lending services. If you ever searched for a loan on the internet then you must have come across these peer-to-peer lenders. These loans are given by other individuals or a group of individuals.

The thing that is getting people interested is that you do not have to rely on banks to get your loan. These services are not just for people who want to borrow some money but also for those who want to lend money. If you are a member of one of these services you can lend money to other individuals. You can make money by funding the loans of other people. These services are based on the crowdsourcing model. By the looks of it, peer-to-peer lending is on the rise for the past few. Even though these services are around 2005 they have increased considerably over the years. By the year 2014, they were lending more than $5 billion to people. Peer-to-peer lending offers a lot of benefits for borrowers as well as investors who want to make money through lending.

This article is entirely dedicated to P2P lending (which is short for peer-to-peer lending). The aim is to provide complete information about these lending services.

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What is peer-to-peer Lending?

Peer-to-peer lending is borrowing money through money lending websites. These websites act as a marketplace for both borrowers and investors who want to make money by funding the loans of other individuals. Here individual people who want loans can connect with lenders. Most people think that there are no middlemen involved in these lending services such as banks. But this assumption is not entirely true. Oftentimes banks fund loans of individuals through peer-to-peer lending websites. 

The investors mostly fund a small portion of the loan of an individual. Here the risk is totally on the investor if the borrower fails to pay the loan. But they will get the interest if the debt is completely paid off. Most of the time it is cheaper to get loans from peer-to-peer lending websites. You can get loans even if you have a poor score on your credit card.

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How do these platforms work?

To get a loan from one of these peer-to-peer lending websites you have to log in and apply for a loan. The website will create a listing if you are approved to get the loan. This list will contain information such as the amount of money you want to borrow, the purpose of the loan along with other details like your income and credit card score. All of your personal information is kept confidential during this process. The lender cannot see your name, ethnicity, address, or social security number, or other information. You don’t have to worry about your information getting leaked online. 

Peer to peer lending websites only provides lenders with information that is enough to make a decision. Your listing will be posted for several weeks and you will get the money once the loan is fully funded. You can lend as small as $25 through these peer-to-peer lending websites. If you want you can also fund the loan completely. This is one of the best ways to invest if you have $100 in your hand. The borrowers who borrowed the money have to pay it back. 

Now that you have an idea about what is peer-to-peer lending and how do they work, let’s look at some of the best platforms you can use.

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Upstart

Most people who have used peer-to-peer lending platforms must have come across this lending platform. This peer-to-peer lender was founded by ex-Google employees in 2012. Since then it has given out more than $3 billion in loans. The machine learning and artificial intelligence algorithms used by this platform make it for an individual to make a lending decision. Upstart offers business loans, personal and student loans. This is one of the best platforms to apply for a loan if you don’t have a great credit card score. But it looks at other factors like your job experience to offer you a loan. But you have to be an authorized investor if you want to lend money. One can borrow anywhere from $1000 to $50,000. The term of repayment is three to five years. It charges 0.5% of the principal balance.

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Prosper

Are you wondering which company has started peer-to-peer lending services? It is Prosper. Prosper is the first peer-to-peer lending website and it was founded in 2005. Since its inception, Prosper has given out a whopping $15 billion in loans. This peer-to-peer lending platform offers personal loans for all sorts of things. You can even get loans if you want to buy an engagement ring. You can borrow anywhere from $2000 to 40,000 through Prosper. It also offers short-term loans for small businesses and real estate. The minimum amount one can fund is $25. You can choose which loans you want to fund using. The term of repayment is three to five and it charges 1% of the principal balance.

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LendingClub

This one of the largest and popular peer-to-peer lending platforms that are available in the market. The platform has been around since 2007. LendingClub has given an unbelievable $47 billion in loans. Like any other peer-to-peer lending platform, it also offers personal loans. Other than that LendingClub also offers medical loans, business loans, and auto refinancing. You can borrow anywhere between $1000 to $4000.  But if you are a lender then you must deposit a  minimum of  $1000 in your account. You can select the loans you want to fund by using filters. The term of repayment is three to five years and it charges $1% from each payment that you receive.

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Conclusion

Peer-to-peer lending platforms provide a great way of acquiring loans. But you should keep in mind that you may have to pay higher interest rates. These platforms also provide a great way for individuals who want to earn money through investment. You can lend small to large amounts and get interests in return. Peer to peer lending is one of the best ways to invest $100,000 or $100. What most people don’t know that their loans may not get funded. But it is very rare so don’t worry.  Only use the most reputed peer-to-peer lending platforms to borrow or lend money.

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