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What Is Peer to Peer Lending (P2P)?

Posted by maxime elkhoury on March 23, 2022
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What Is Peer to Peer Lending (P2P)?

How Does Peer-to-Peer Lending Work And What Is It?

Peer-to-peer lendings is a relatively new model of online lending in the financial services industry, but the idea behind this innovative form of fintech-based financing really isn’t that new at all. When we strip away the modern technology around some of the most successful peer-to-peer lending platforms that have launched in North America-platforms like Prosper and LendingClub-and really look at this financial service in its simplest form, peer-to-peer lending ultimately comes down to the act of one person borrowing money from another person, at a cost, with the agreement to pay them back within a certain period of time. There are no banks involved. Just people lending money to other people. It’s really quite simple.

Maybe you borrowed money from a sibling when you were younger, just enough to buy yourself the latest copy of R.L. Stine’s Goosebumps at your local elementary school’s bookfair. If you did, you would have learned a valuable lesson that day-that you don’t get to borrow money for free. A loan-even a small one-almost always comes at a cost. In order for both the lender and the borrower to collectively benefit from any form of lending, some kind of fee, interest rate, or payment is generally involved in addition to an agreement that the borrower will repay the loan back in full. That’s traditionally how lending works.

Even when technology is involved, the fundamental concept behind lending money remains the same. Lending is based on an arrangement that’s mutually beneficial to both parties. Without a financial return, a lender is out of money for a period of time and stuck wondering, well, what’s in this for me? Lending amounts can be different, interest rates can be different, and payment terms can be different in any situation. The one thing that generally remains the same when it comes to lending is that the lender must feel like they’re making an investment-they’re exchanging money now with the expectation of receiving a return on that investment in the future. Continue Reading

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