Peer-to-Peer Lending

by Lois Leonard

1 min read

Peer-to-peer lending is the practice of matching a qualified borrower and a private lender outside of the traditional banking system. A P2P loan, for which you can apply online, may work if you need money to invest in your business and don’t meet all of your traditional bank’s borrowing qualifications. Although P2P lending may sound ideal, the practice has its pros and cons. Advantages of P2P LendingPrivate lenders charge borrowers interest, so lending money has the potential to provide a nice income source for those engaged in peer lending. People who lend money privately can do so from their laptop or smart device without government approval; they also don’t need employees or business premises. Peer lenders consider broader aspects of borrowers’ profiles, beyond credit history, to make lending decisions. Lenders also make quick decisions; a borrower can apply for a P2P loan online and be approved within one week. Disadvantages of P2P LendingFor lenders, the biggest disadvantage is that they are making unsecured loans with no real assurances that the loan will be repaid. Borrowers who don’t pay could result in lenders losing their entire investments. Borrowers who fail to repay their P2P loans could see their credit scores drop and squander the goodwill of lenders who took chances on them. You can’t borrow your way out of debt. Consider your realistic ability to repay before applying for a P2P loan.

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