Peer-to-Peer Lending; Practice of Lending Money to Individuals or Businesses through Online Services

Peer-to-peer lending, or P2P lending, is a way for people to lend money to businesses and/or individuals, with the help of online services. But P2P lending can be much riskier than a savings account. Peer-to-peer lending services allow an individual to borrow money directly from some other person. This eliminates the financial institution as the middleman. Online channels make the entire process of money lending easier, which has led to an increase in the usage of these services through these channels.

The key objective of peer-to-peer lending is to boost returns for the lenders and reduce interest rates for borrowers. Moreover, it helps provide quick and convenient loans, as the process of P2P lending is entirely online. Other forms of P2P lending include commercial and real estate loans, student loans, payday loans, and secured business loans, among others. In short, peer-to-peer lending is one of the most simple and effective ways to make passive income. But peer-to-peer lending is a risky investment.

P2P lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Peer-to-peer lending brings investors (both individuals and companies) directly to people who need to borrow money. It connects individuals in need of credit with others willing to lend. Money lending platforms purely acts as marketplace or an intermediary that connects borrowers and lenders. P2P lending boosts returns for individuals who supply capital and reduces interest rates for those who use it.

Several governments worldwide are supporting P2P lending platforms by providing a suitable and specific framework to protect lenders from any potential risk. For instance, in the U.S., peer-to-peer lending is treated legally as investment; however, the federal government does not guarantee repayments like bank deposits. The Securities and Exchange Commission (SEC) is responsible for the investing side of these platforms, while the Consumer Financial Protection Bureau and the Federal Trade Commission regulate the borrowing side.