What is Peer-to-Peer Lending

For those looking to invest in a practice that can take their entrepreneurial skills to the limit, peer-to-peer lending is worth being educated about. This effective and innovative new technique is a method of debt financing that allows individuals on...

For those looking to invest in a practice that can take their entrepreneurial skills to the limit, peer-to-peer lending is worth being educated about. This effective and innovative new technique is a method of debt financing that allows individuals on the Internet to borrow and lend money without the need for using an official financial institution as an intermediary. More commonly known as “social lending,” peer-to-peer lending makes for more open opportunities for entrepreneurs by cutting out the middlemen.

However, the practice is a lot more time consuming, requires more effort, and presents more risks than official lending routes. If you are willing to go the extra mile to get the money for your next big start-up, however, peer-to-peer lending can provide an excellent resource for the well informed.

So why do people engage in peer-to-peer lending in the first place, and what brought it about? One of the major advantages social lenders have is that the loans they offer income for them in the form of interest. Because these loans are not being offered through traditional means, the amount of interest can become much more open ended. Because P2P lending allows borrowers without the means to get a loan otherwise to have access to a newly valuable stock of revenue, they are willing to risk more interest intensive borrowing practices. Overall, this is the audience that participates in P2P practices the most often.

However, the lender has disadvantages to consider alongside the positive aspects of being able to charge more interest. Perhaps the biggest risk lenders take is that the borrower will not be able to, or will simply refuse to pay them back for their loan. After all, traditional financial intermediary institutions may have denied them a loan due to past defaults or other unsavory financial behaviors. While you can pursue legal actions to receive the money a borrower owes you, the process is much more drawn out when you are not a certified borrowing institution.

For buyers, the main disadvantage remains the interest associated with P2P loans. In fact, the interest for these loans can become even higher than traditional prime loans. Depending on the P2P lending system or platform being used, results and general customer feedback vary, so it is important to educate yourself on the options available to you.

To help those interested in participating in P2P services get started, here is a list of the four best P2P platforms currently available:

1. Prosper

Starting off in 2006, Prosper is one of the oldest P2P lending services around. Perhaps best known in the P2P community for having some of the lower interest rates available outside of a traditional financial institution, the platform attracts innovative entrepreneurs from around the world every day. Currently, the site boasts that it has helped people receive loans that total over a billion dollars, so you know you are dealing with a site that knows how to best set up a P2P community.

2. Lending Club

Prosper Club’s biggest competitor, and another excellent P2P resource, Lending Club is currently the US’s biggest lending platform. With multiple lending options, including personal, business, patient loans and more, the site is as diverse as it is popular. IF you want to educate yourself more about P2P practices and solutions, the site also has a wonderful section dedicated to educating its visitors about responsible P2P practices. Overall, you should definitely check out Lending Club if you are at all interested in borrowing out or receiving a P2P loan.

3. Upstart

Having just recently rebranded to a peer-to-peer lending service, Upstart is one of the newest platforms that P2P enthusiasts are getting excited about. Just check out this pitch from the company: “Upstart is a platform that allows you to obtain unsecured funding through fixed rate loans. Upstart believes that you are more than your credit score. Our statistical model considers the school you attended, your area of study, academic performance, and employment history to offer you the loan you’ve earned.” With funding potential that goes well into the millions in some cases, Upstart is a great place to check out if you are unable to acquire loans from a more traditional financial institution or resource.

4. Zopa

Zopa provides the oldest P2P service based out of the United Kingdom. Standing for “zone of possible agreement,” the site is dedicated to borrowers and lenders who are keen on negotiating to receive mutually beneficial deals. Overall, this site is perfect for entrepreneurs looking to receive a loan they know will benefit them, without having to borrow an excessive amount of interest heavy assets. Due to its UK based location, however, it may not be as accessible as the other sites for many American users.