The movement of funds from the lender to the borrower has, since the longest time, been a sector that has been evolving through time constantly, with terms such as loans and mortgages catching on quickly. The present economic realm has made multiple ways possible for cash flow to happen from institutions that can provide help to individuals or conglomerates who need funding at a rate of interest set as per market standards.
Peer-to-peer lending, which is P2P lending, is a method of lending funds through online platforms where lenders and borrowers can meet on one platform to be matched as per affordability and demand. The biggest advantage of this kind of fund exchange is that since the processing and execution of P2P are mainly based through the Internet, this cuts price at which the service of providing funds are available. This makes room for higher returns for them who are able to label themselves as lenders.
This form of lending funds, also known by the name of crowd lending, most of the time is unsecured personal loans, wherein large sums of funds are allocated mostly to business holders rather than just an individual. There are secure kinds of lending in this process as well, wherein luxury assets can be kept as collateral. Examples of such items are jewelers, expensive watches, cars, even building, an aircraft, that may be associated with businesses.
Peer-to-peer loans can be of various kinds. This kind of borrowing may help students who seek education loans, it may help possible homeowners buy a piece of property, and it may also be used as payday loans, wherein an advance is attained of a portion of what is expected of the next pay of an individual.
This kind of loan is unlike the kind that is provided by banks and other financial institutions. These financial bodies follow market rates while providing interest quotations to their customers. In the case of P2P lending, the rate at which interest will be calculated can be decided by the person or entity who is lending the funds, or it may be decided by the company or the website that is being used as a platform for lenders and borrowers. Most of the time, the interest rate may also be decided to keep the borrowers credit rating in mind. Here, the amount the lender passes on to the borrower is not secured by any government protection.
The market has also witnessed companies or websites that act as the third party between the borrowers and lenders. This is when the company themselves borrow funds from borrowers and allocate them to lenders under the umbrella of their policies and rules. Security options provided to P2P lenders in the country is regulated by the SEC. This has made it mandatory for peer-to-peer providers and mitigators to obtain a valid license for the government of the country before they are able to legally function. Without obtaining this, functioning in any form is illegal, which not only risks the lenders who associate themselves with the company but also place at an unsecured blanket where they fail to remain protected against non-payment or any other kind of emergencies.
