Peer to peer lending, or person to person lending, is the lending and borrowing money between people without going through a bank. Basically Bob asks Joe for a loan and Joe sets up the terms and gives Bob the loan if Bob agrees with the terms. Joe is taking the entire risk of the loan.
There are a few websites out there that faciliate these types of loans. If you have money to lend and can accept the risk then it might be something worth doing. Peer to peer lending allows people to get a loan that a bank wouldn’t be likely to give them. Banks tend to have higher interest rates and higher standards than a non-banker might have.
The biggest risk in Peer to Peer lending is what to do about people who fail to pay. Established banks have all sorts of legal power to go after people who default on loans. The average person can’t afford a lawyer to go after someone who owes them only a few thousand dollars. Especially when that person is out of state.
It’s also difficult to get a credit report for a prospective borrower and be able to come up with a metric to determine the risk. Banks have that sort of thing down to a science.
P2P lending is in theory a very good idea. But you need to really do your homework on people before giving them your money.
Thanks for sharing such great post, it will surely help many people who want such detailed information about p2p. According to me lower interest rate is very much important and beneficial for borrowers. For more details on p2p refer http://www.prime-targeting.com/save-the-endangered-species-american-middle-class-with-p2p-lending/