Introduction To Peer To Peer Lending

Peer to peer lending or P2P financing is defined by Wikipedia as – the practice of lending money to unknown people or peers without going via a classic fiscal intermediary such as a bank or other conventional financial institution.

As the definition indicates, it's an alternate kind of financing in which folks contribute to individuals. This practice has been happening since time immemorial, however, the expression has gained popularity because of the entrance of several platforms that facilitate such financing between individuals, for example, Swaper.

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what is peer to peer lending

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A P2P lending trade would entail a willing lender along with a ready loan seeker (debtor) who agrees on particular conditions including Interest rate, length, etc. A loan seeker might have many motives to avail a P2P loan as opposed to a conventional loan. These include:

  • Flexibility in determining prices, durations, small loan amounts
  • Lack of rigorous norms and paperwork
  • Transparency
  • Quick execution in the event of emergency requirements

A creditor would mostly consider P2P financing for two fundamental motives:

  • Option investment
  • Philanthropical

For a creditor, P2P lending is a quasi-fixed investment instrument in the sense that it supplies a predetermined rate of return (a creditor negotiates with the loan seeker), but one which is considerably higher than a fixed deposit but he/she takes up a danger that's greater than a Bank FD or a post bail bond.