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P2P Lending – Get a Clear Understanding Before Becoming Lend or Borrow Money

P2P Lending or Peer to Peer lending is one of the ideal ways to make some good profits on your cash by providing loan to borrowers, whom you can choose according to your requirement.

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By Mystic Vivan
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P2P Lending

P2P lending

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Financial support is required by every individual to deal with the issues that often create obstacles on the way to success. For them, getting the loan arranged through varied modes is a common phenomenon. If you are one of them looking for the right loan options, P2P Lending can be the best option.

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Peer to Peer lending or P2P lending is the right way – enabling individuals obtaining loans directly from other individuals – cutting out the financial institution as the middlemen. It is counted as the alternative method of financing – also known as social lending or crowd lending.

For more than 18 years has become competitive in the market with a number of big names already supporting like Upstart, StreetShares, Lending Club and the list goes on.

Highlights of P2P Lending

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Before you step in P2P investment or looking for the top P2P lending platforms, it will be better to check the key points and know about some of the highlighted key points that will surely enhance your experience. Here are the key points to note and to go through before you start investing or seeking the right solutions:

  • It is a type of financial technology – allowing you to lend/borrow money from one another devoid of spending time in banks or online procedure in banks.
  • A trusted websites that deals in the same process help users – connecting each other (borrowers) to investors.
  • You will know about all terms and conditions and rates along with a way to enable the transactions
  • Lenders in this financing procedure are investors (individuals) who want to get ROI on cash savings in comparison to get from a bank savings account or certificate of deposit.
  • P2P Borrowers seek an alternative to traditional banks or a lower interest rate; while the default rates for such loan amounts are higher than the traditional finance.

A Clear Understanding of P2P Lending Procedure

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Websites or P2P lending platforms are playing a key role in connecting borrowers with lenders. You should keep in mind that each website sets the terms and rates separately and enables the transactions. You will see different websites have different interest rate slabs that are based on the credit worthiness of the applicant. 

  • The procedure starts with opening an account with the selected website and deposits a sum of money to be dispersed in loans.
  • The applicant posts a financial profile – assigned a risk category – determine the interest rate that will be paid by the applicant.

Here, an applicant gets reviews about offers and time enough to accept the best one. You can also break up your request as an applicant into chunks and accept multiple offers. 

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  • P2P lending platforms are the right source to handle money transfer and monthly payments.
  • The process is easy to automate; while borrowers and lenders can choose to bargain.
  • You will also find some websites that have specialization in particular types of borrowers.

Some of them are designed for small businesses; while some of them have made categories to link professionals.

Know About the History of P2P Lending Before Start Invest or Borrow Money

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In the beginning, this procedure was put in the category of offering credit access to people – mainly those who would be rejected by conventional institutions or a way to unite student load debt at reasonable interest rate. In the last couple of years, a good number of P2P lending sites have expanded their reach – targeting consumers – mainly those who want to pay off credit card debt at a lower interest rate. It can be the right sources of home improvement loans, auto financing and different other options. In comparison to bank rates, the rates for applicants with good credit score are lower. If applicants credit score is unclear, the rates may go higher.

If you are lender, you will have a great way to generate interest income on your cash at rates – exceeds those offered by conventional savings account or CDs (Certificates of Deposit). You may also find a number of P2P lending platforms – allowing lenders to start with an account balance of as little as INR 2000.

For people who want to lend money through a P2P lending need to consider the possibility of the default by the borrowers in the same way the banks do. According to the researches on P2P lending platforms, defaults are more common in comparison to those facing financial institutions.

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You as a consumer or P2P lending investor are supposed to consider a P2P lending site and check the transaction charges too. You should know about the fee and commission that may be charged to the lender, the borrower or both. Websites that are providing you support in P2P lending may also charge loan origination fee, late fee and bounced payment fee.

Should I Focus on P2P Lending – Is It Safe?

Peer to peer lending may be riskier in comparison to saving accounts or certificate of deposit. However, the rates of interest are higher because people do invest in a P2P lending site presuming most of the risk that is assumed by banks/financial institutions.

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What Is the Status of P2P Lending in Finance Domain?

According to surveys and available records, Peer to Peer lending market touched a magical figure of $84 Billion in the year of 2021. According to experts, it will be $700 Billion by 2030.

Tell Me the Procedure of P2P Investment

The simplest way is to start the procedure by making an account on a P2P lending website and start lending money to borrowers. Here, lenders are free to choose the profile of the borrowers – mainly to choose between high risk or high returns or more modest returns. You may also find a number of P2P lending sites that are public companies. In this way, you can also make some big profits by investing in their stocks.

If you have any confusion or you want to clear your doubts before becoming a lender, it will be better to consult with experts and get the right solutions. You will find a number of top names in this domain offering the right solutions.

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