While loans are supposed to be a way to finance large investments, a lot of people balk at the idea of availing one. The thought of paying high-interest rates on loans, and the numerous trips to the banks to get one approved, is enough to make even the strongest person quiver. Gone are those days of visiting banks and waiting for days to get your loan sanctioned. Thanks to peer-to-peer lending platforms, you can now be in full control of your loans and investments. For those who wish to expand their investment portfolio, peer-to-peer lending is a great opportunity. Before jumping into the fray, it is advisable to know the answers to some of the most common questions regarding peer-to-peer lending. What is peer-to-peer lending? Peer-to-peer lending, also known as crowd or social lending, is a way of obtaining loans from individuals without the involvement of any credit unions or traditional banks. Individuals, who wish to utilize their surplus money, loan the same to those in need at high rates of returns. Unlike traditional lending, in peer-to-peer lending, there are no intermediaries. The loans obtained can be used for several purposes like home improvement, business operations, debt consolidation, funding medical treatment, and the like. How does it work? Borrowers can meet lenders on an online platform. These online platforms have integrated algorithms through which the credit profile of an applicant can be assessed and based on this profile rate of returns is offered. All terms and conditions are set by the platform.
- For investors Investors can open an account type, pick an investment strategy, link their bank account, and transfer money to the borrower’s account. As soon as the borrower makes the repayment, the principal and the interest go back into the investor’s account on the platform, which can later be transferred to their banks.
- For borrowers The platform assesses a borrower’s creditworthiness through an application form. This application form gathers basic information about the borrower, his/her existing credit history, and the amount of loan they require. On the basis of such information, a loan option with a repayment schedule may be offered. Once the loan is sanctioned, it is transferred into the account of the borrower.
Is peer-to-peer lending safe?
- The platforms practice stringent data protection measures, which guarantee that under no circumstances the information pertaining to investors or lenders can be extracted.
- Furthermore, every web page of the platform that supposedly has financial and personal information is secured using SSL layering.
- The platforms furnish all the terms and conditions applicable to loan borrowing or fund investing. This means that there is a transparency of information and if either party has a doubt, they can contact customer service representatives.
Despite all the upsides, ensure that you are well aware of where your money is going. Also, there could be times when a platform seeing your credibility will offer you several other loans. It might even ask you to stretch your limits and make subsequent investments. However, be careful before undertaking any such ventures.
