ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Personal Finance»
  • Mortgages & Loans

Why People Use Peer to Peer Lending

Updated on January 9, 2018
tamarawilhite profile image

Tamara Wilhite is a technical writer, industrial engineer, mother of 2, and a published sci-fi and horror author.

Introduction

Peer to peer lending refers to people borrowing from others, their peers, instead of banks or credit unions. Peer to peer lending, also called P2P, lending has been increasing in popularity for several reasons. Let's look at several of the reasons why.

Peer to peer lending allows people to borrow from friends, family and strangers.
Peer to peer lending allows people to borrow from friends, family and strangers. | Source

Reasons for Using Peer to Peer Lending

  • Lending from peers can be based on reputation but is always independent of credit score. For those just starting out their financial lives, borrowing from peers may be the only form of borrowing available to them.
  • Peer lending generally offers much lower interest rates than credit card debt. This is why many turn to P2P lenders instead of using credit cards.
  • Peer to peer lending may be the only way someone could borrow a small, "microloan" amount or after bankruptcy.
  • Peer to peer loans can be used to replace or in place of personal loans. Banks rarely loan money to someone to pay off their parents or friends. Peer lending networks, however, can provide funds to pay off personal loans.
  • Personal loans can be run through peer lending services. This removes the awkwardness of a relative or friend demanding periodic payments.
  • P2P also gives the lender a means of enforcing collections through the peer lending website if not paid. For example, if the borrower ends up filing bankruptcy, the P2P loan information provides proof for the lender that the debt is owed and thus must be included in the bankruptcy repayment plan.
  • Peer lending services also allow someone to receive a majority of the funds from a relative or friend while using the peer lending service to provide the remainder of the funds for a project. One person can front $5,000 through the peer lending service while others bid to lend the remaining thousands of dollars for the project.
  • Peer lending services simplifies the loan management for the borrower, since they only have to make one payment to the peer lending service to pay all of those who loaned them money.
  • Because peer lending offers higher rates of return than high yielding savings accounts, peer lending is an avenue of making money.

  • Since peer lenders can front very small amounts of money to many borrowers, lenders can diversify their portfolio and lower their risk compared to loaning one friend a large sum of money. Those who want a higher return on their money can reduce the risk by loaning $5,000 to a friend and $500 to ten other people to reduce the risk of default relative to the odds a borrower defaults.
  • Peer to peer lending online lets borrowers tap into social networks far larger than their immediate community. For example, a borrower could promote a business idea and small investments in the loan from hundreds of people around the country instead of trying to convince several dozen local lenders to give them a small amount of money.
  • P2P lending websites can be set up to automatically deduct funds from someone's bank account and transfer monthly payments to the lenders. This is far simpler than trying to write a check each month to each lender and generates a third party paper trail that is invaluable if the loan repayment lands in court.
  • Peer to peer lending can be coupled with coupons and discounts with a startup, allowing new business ventures to engage potential customers while gaining startup capital.

Comments

Submit a Comment

  • onthegrind profile image

    onthegrind 6 years ago from Florida, United States

    Interesting. P2P definitely serves a purpose. I can see how this may be a growing trend.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)