P2P lending, or peer-to-peer lending, is a method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary. This process is typically conducted through online platforms that match lenders with potential borrowers. The system relies on an individual assessment of the borrower’s creditworthiness and can sometimes offer more flexible or diverse lending criteria than traditional banking.
With savings rates having been stuck in the doldrums for years, savers and investors have been looking for alternative ways to earn interest on their cash. This has led to a rapid rise in the number of P2P websites on the market and the number of people using them.
Rachel Wait, Forbes writer
In Simpler Terms
Imagine you’re part of a community where, instead of going to a bank for a loan, you borrow money directly from a neighbor or another community member. That’s the essence of P2P lending. It’s like a digital version of a community loan club, where individuals lend and borrow money among themselves, facilitated by an online platform.
While P2P lending can offer more accessible loan options and potentially better interest rates, it also comes with its own risks. Borrowers might face higher interest rates if they’re deemed higher risk, and lenders could lose their money if borrowers default.
