The alarm clock is ringing…. You have to wake up and go to work…..Naaahhh. That is not true anymore; you have the opportunity to make the same money from home. P2P lending is a great way to start making money online. The first official P2P lending platform, “Zopa”, was created back in 2005 but until 2008 it wasn’t getting a lot of attention as a service. In the traditional lending model, prospective borrowers approached banks or loan originators from whom they received loans. They were having specific amounts of funds, which were managed with strict requirements to grant these loans. When the 2008-2009 crisis hit, public trust in financial services organizations was significantly reduced. This helped P2P as a lending alternative, to stand out. Since then, many platforms have been created and the industry is continuously growing.
But what is P2P lending anyway?
The actual meaning refers to Peer to Peer lending and it is based on Fintech more specifically it could be delivered via blockchain technology. Peer-to-peer lending is the practice of lending money to individuals or businesses through online services (P2P Platforms) that bring lenders in contact with borrowers. It enables individuals to loan to someone else or even acquire a loan. Money transactions, from Peer to Peer, are performed directly without the need for a bank. The only essential for the transactions to occur is a platform that connects the loaner and the obtainer. P2P lending is the most used term to describe this process. But it is also known as “crowdlending” or “social lending”, and before you get confused we have to mention that crowdfunding is different.
How does P2P lending work?
As an investor, you have to open an account on a P2P lending platform and deposit the money you want. On the other hand, the applicant publishes the amount of money that is needed and the risk involved in the investment. The interest rates are depended strongly on the investment risk… the higher the risk the higher the interest. A loan can be obtained from different borrower sources, investing the required amount of money. It is a process that most of the platforms can automatically follow, depending on the kind of loan that you want to invest in. The loaning preference can easily be structured on the platforms. Usually, they have a kind of trustworthy rating value for the applicants which is utilized to specify whether your invested money has some type of guarantee.
The Process Step by Step
1. Borrowers apply for a loan at a loan originator.
2. The lending company evaluates the application, sets an interest rate, and disburses the amount from its own pool of funds.
3. The loan is then added to the P2P platform where the users of the platform can choose it for investment. Therefore they will receive monthly installments of the amount plus interest.
To conclude, P2P lending is a direct method of loaning which could potentially benefit both the loaners and the applicants. For the applicants, the process is a lot easier and quicker in contrast to traditional lending which could take more time. Moreover, it offers an opportunity for a new investing industry to grow and for more investors to take advantage of online passive income.