Peer-to-peer lending can also be known as people-to-people lending. This is simply a way for ordinary people, or people of ordinary means, to request loans and have other people partially or fully finance them.
How does peer-to-peer lending work?
Peer to Peer lending is usually managed by companies. These companies are the central hub where borrowers and lenders can meet. As if a borrower were to request a mortgage online from a bank they would visit one of these websites to request a loan. You can also invest in peer-to-peer lending online to get a loan.
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This is where things change. It is no longer up to a powerful bank that can decide whether a loan will get approved or rejected. Instead, the decision is made by a group of peers who are also lenders/investors for these private loans.
Each investor is able to view the loans submitted and any credit report information. Investors can lend from $25 to the entire amount of the loan. After the loan has been funded, the identity of the borrower will be verified by the lending club.
After the funds are funded, the borrower will be able to start making monthly payments to the administrator company. They will then distribute the funds proportionally to all investors and the interest earned by providing the loan.
Peer-to-peer lending, which is a form of lending that relies on borrowing from a group of people rather than directly from a bank, can be summarized as follows: This model has many advantages for both the borrower and lender.