P2P networks are those that directly connect all the participants in the same network. We all are aware of eBay and Craigslist (popular P2P platforms). They have already transformed the market for used consumer goods.
What is P2P Lending?
P2P Lending connects the borrower with the lender in a blockchain network. There are a lot of P2P lending websites on the Internet that facilitate debt transactions. P2P Lending has become a dynamic opportunity for lenders to invest and earn profits.
Not all P2P lending platforms are the same. They differ in type and approach. Some platforms connect borrowers and lenders directly, whereas a few platforms link them via a third-party source.
Some P2P websites allow lenders to fix interest rates, and on the other hand, some sites will enable them to preset rates based on their past performance and credit score.
Why is Bank-based Lending seeing a Downfall?
Last year witnessed a steady increase in the total number of P2P crypto lending applications. This clearly states that the entire world is interested in crypto-based Lending rather than traditional loans. Let’s see the significant differences between P2P and bank-based Lending.
Though the technology sector is enhancing every day, getting a loan from a bank is still a tedious task. Banks require a number of legal documents from borrowers. The list includes proof-of-residence, higher credit score, proof-of-employment, previous months’ bank statements, and some banks even ask for collateral.
“Even when the borrower submits all the documents on time, he/she has to wait for more than ten days for the loan to get approved and another ten days to receive the loan once sanctioned. This is the primary reason people are shifting towards P2P Lending.”
How does P2P Lending Work?
P2P Lending involves borrowing a loan without the need to approach a conventional lender, for example, banks. The loans are approved and sanctioned by investors and lending companies across the globe. Borrowers, either individuals looking for personal loans or companies looking for business loans, can make use of P2P Lending.
How are Loans Processed in P2P Lending?
An investor decides how much money they wish to invest in the platform. Depending on the lending platform they invest in, their investments will be distributed accordingly. Let’s see an example.
Assume that an investor decides to invest in a platform. He/She has two options to set on the money disbursement.
- An investor can choose to fund one particular loan.
- An investor may decide to invest in multiple loans.
We have done significant research on these two categories and found that experts and lending platforms recommend the second one because it reduces the risk of losing all your money.
Besides, investors can set the minimum interest rate and select a loan that best fits their needs. Whereas, the platform admin sets the investment decisions in some cases.
When a borrower applies for a loan, the lending platform evaluates the credentials provided by him/her and approves the borrower’s loan. The admin evaluates the borrower’s suitability by verifying the credit history and their capability to repay the loan on the given tenure.
Advantages of P2P Loans
- Blockchain-backed Peer-to-Peer loans are faster than bank-based loans.
- P2P lending platforms offer better rates than conventional methods.
- P2P platforms also offer a flexible market, where participants can negotiate.
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