Guest-post about peer-to-peer lending definition

Guest-post about peer-to-peer lending definition <– Link to original

peer-to-peer lending definition

P2P lending,
otherwise known as peer-to-peer lending, is a system that connects lenders and
borrowers by eliminating middlemen like banks. This type of lending is mainly
done online, and those sites that facilitate it have significantly increased in
number as most individuals and businesses adopt it as a way to get financing.

The first
peer-to-peer lending platform, known as prosper, was established in 2005. Since
then, thousands of P2P lending sites have sprouted up across the globe.

How does P2P work?

P2P lending sites
work by connecting investors to borrowers. It is the site that sets the
interest rates and terms of the loans (however, there are those sites that give
lenders the power to determine rates). It is important to note that you will
notice different rates on loans within a single site. This is brought about by
a difference in the risk associated with the loan and even the loan term.

The p2p lending
process begins with the opening of an account. After successfully registering,
the investor then deposits some money in the account which is used to invest in
the different loans available. Peer-to-peer lending sites have different
minimum amounts that an investor can invest, be sure of the minimum amount you
require to invest before you deposit funds.

On the other side,
a loan applicant submits their loan request to the lending site. The
application is evaluated by a team of experts in the p2p site before it is
published on the site. The P2P site also assigns the interest rate and
categorizes the loan into a risk category, depending on the rating process
followed by the site.

Benefits of investing in peer-to-peer lending

Before you make any
investment decision, it is always important to have an understanding of the
benefits that you are going to enjoy from your choice. By investing in P2P
lending sites, these are the benefits that you will enjoy.

  • Higher rate of returns

lending sites have higher returns compared to conventional banking systems.
Generally, the rate of return on the most platform is about 13%. The P2P sites
can achieve such rates or yields because they have lower overhead costs, and
set the interest rates on their own.

  • Regular source of income

peer-to-peer lending sites make monthly payments to investors. This ensures
that you have a steady source of income every other month until the loan term

  • It requires a small capital to start

P2P lending sites
only need a small amount for one to invest in the loans published on their
sites. Some sites allow investments of as low as 5 euros. With an investment of
around 1000 euros, you can easily diversify your portfolio to tens of
investment loans.

  • It is easy and fast to invest or borrow

Investors and
borrowers can easily register accounts with the lending sites and transact
within the dame day. This is not the case with banks where there is a lot of
paperwork and bottleneck requirements that make it almost impossible to get a

peer-to-peer lending sites also have some disadvantages that are worth noting.

  • Credit risk- the loans offered on P2P sites are usually exposed to high credit
    risks. A good number of borrowers for funding from peer-to-peer sites are those
    that have poor credit scores and cannot get financing from banks and other
    regulated financial bodies.
  • No regulation– not all peer-to-peer lending sites are regulated by the government.
    As a result, if a site scams the investors, it would be nearly impossible to
    track it and recover the investor’s assets.

What risks are associated with P2P lending sites?

  • Money drag

Upon the completion
of a loan term, investors reinvest their money into other loans on the
platforms they are using. To make the reinvesting cycle more effective, an
investor should use the auto-invest tool which automatically invests into other
investments once a loan is paid off.

A money drag risk
occurs when a loan that you had invested in finishes its term, and when
payments are made, the money is left uninvested. The funds will be lying in
your account without getting any returns.

  • Borrower

When lending out
money, there is always the risk that the person receiving the money may fail to
pay. A borrower can default before you receive the entire loan back. Some
platforms will help you recover such money, but the risk of losing the money is
still there.

  • Platform

This is one of the
most serious risks that are associated with peer-to-peer lending sites. Unlike
the loan originator bankruptcy where your P2P team can help you recover the
money, a platform bankruptcy is most likely going to lead to a loss of all your
investments. However, there are some P2P sites that separate their accounts
with those holding investor’s funds, so that in the case the platform goes
bankrupt, the investors’ money is still safe.


Thousands of
businesses and individuals have benefited from the crowdfunding sites.
Crowdlending remains to be a great source of finance for project developers,
companies and individuals while ensuring that investors get a hassle-free
income from the money that they lend.

It is advisable to
always carry out thorough research about a given peer-to-peer lending site
before investing in it. Understanding a P2P site is the first step in making a
god investment decision. You can go through the reviews on different P2P sites,
that we have compiled for you to understand how each P2P site operates.

Wisefund Review:
have made a biased in depth Wisefund Review <– Link to

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