What is a peer to peer lending?

As peer-to-peer investment is becoming more and more popular in the financial sector, including in our country, we thought of doing this article.

More and more people present on Norske Anmeldelser are wondering… what are these peer-to-peer – peer-to-peer loans? What kind of investments is this? Now, at the beginning of the fourth industrial revolution, new ways of doing business appear every day and the general public is bombarded with new information. These new types of technology that hit all existing disciplinary areas so far will change the way we live.

What are Peer-to-Peer Loans?

When a person needs money and does not have enough own resources, the only solution he has at his disposal is to resort to loans or borrowings. As you well know, a loan happens when you give another person a sum of money to carry out a certain project. It can be for a start-up, a micro-enterprise, to buy a good or, why not, to repair its roof.

In the end, if everything goes according to plan, this loan will generate profit, and eventually, you will get your money back. The risk associated with that project is proportional to the amount of interest you will receive, which can lead to the loss of the amount invested.

But this is not peer-to-peer lending, it is just the concept known to everyone when you make a loan.

As a person who offers money, you are interested in ‘how much?’, ‘For how long?’ And ‘how risky?’. A peculiarity of this type of loan is the fact that a person can access the necessary funds from several investors, not just from one, and the repayment will be made to each source, directly. Peer to Peer lending platforms mediate transactions between a client and an investor, usually obtaining interest on the loan amount.

Why has the peer-to-peer investment industry become so popular recently?

One of the main reasons is very good interest rates. If you receive an interest rate of 1% – 2% on a savings account or a bank deposit, Peer Peer loan platforms offer good interest rates on your borrowed money. You can get an interest of between 5% – 20% of Peer Peer investments. You don’t have to have investment knowledge and you can do everything online. All you have to do is transfer money and invest. Some platforms offer very good bonuses on first deposits, for example, Mintos.

How does a Peer to Peer platform or direct human-to-human lending work?

Here are the simplest steps for P2P:

• The person who wants to obtain a loan fills in an application form in the P2P platform.
• The P2P platform collects information about the borrower, checks the person’s income, gives a score to the customer, and assigns a certain degree of risk.
• If the loan application is accepted, it is sent to investors (those who come with money on the platform).

Investors analyze their dashboard with different requested loans and after choosing a loan, they can make this investment. The amount that the investor has in the platform can be divided into several loans, to have a diversified portfolio. Thus, investors obtain substantial income, higher than bank deposits, investing small amounts in many loans with different degrees of risk.

Subsequently, if the amount requested by the client is collected from investors, the money is transferred to the borrower’s account. The borrower has to pay the loan amount in installments (just like at the bank), and if he has arrears of more than two months, his file can be sent to the debt collection agencies.

So, in addition to the ways to invest in the stock market, in real estate, investment funds, stocks, or other financial instruments, there is another type of investment: Peer to Peer lending or person-to-person loans.