What is Peer to Peer Lending?

Peer to Peer Lending (P2P) – why does that sound like your aunt lending you money? Well, you aren’t wrong. It kind of is, just on a more formal level.

P2P Lending takes the banker out of banking. Investors lend money directly to borrowers through a website enabling both parties to benefit from the rate of interest established for each loan.

Why choose Peer to Peer Lending?

Savings. Do you want your money lining the pocket of a banker or in your own pocket?

Peer to peer lending makes it possible to reduce your debt for a lower interest rate then you would get through a traditional bank keeping more money in your wallet.

With a P2P loan, borrowers are able to save an average of 24% on interest rates when consolidating debt with a peer to peer lending corporation like Lending Club or Prosper..

Is there risk with P2P lending?

The risks are more as an investor then a borrower. As an investor, investments held through a businesses like Lending Club and Prosper are not bank assets so they are not insured by FDIC like bank assets would be. If the loan goes into default, you stand to lose a portion of your investment.

That said, companies like Lending Club and Prosper uses best practices to try and collect payments from delinquent borrowers, but there is still risk without the assets being insured.

What types of loans are offered?

Peer to peer lending offers several types of loans – personal, business and medical.

Each of these products offers different interest rates and terms but the personal loans can be used for nearly any purpose.

Personal loans can be used for credit card refinancing, debt consolidation, home improvement, major purchases, home buying, car financing, green loans, business purposes, vacations, as well as nd moving and relocating. Just be mindful that most P2P lending sites cap their personal loan amounts between $35,000 and $40,000.

If you are a borrower with a great credit score, P2P lending is a great option to keep interest rates low and repayment terms reasonable. If you are looking to diversify your investments than using popular online lending platforms such as Lending Club and Prosper are a great way to help do this.