Peer-to-Peer Lending: What You Need to Know

Peer-to-peer lending, which is commonly referred to as P2P lending or simply P2P, is the process of lending money to “peers” through an online lending website instead of going through a bank or other traditional financial institute. Online lending websites each have their own lending platforms and credit checking tools. Getting started with peer-to-peer lending can be confusing, so here are a few things you will need to know as a lender.

Choosing a Lending Site

When considering P2P lending, it is important to evaluate the websites available, as each lending site has a different criteria for lenders trying to establish loans. For example, some lending sites will allow their lenders to set their own interest rate, while other lending sites set an interest rate for the lender. It is also important to look for a lending site that offers guaranteed loans, which means that even if the borrower defaults or misses a payment, the lender will still be reimbursed.

Choosing a Borrower

Peer-to-peer lending sites offer a risk rating on all borrowers. A risk rating is based on the borrower’s credit score and annual income. This is a risk that needs to be considered against the potential earnings that will stem from the interest generated by that particular borrower. If it seems too risky, it most likely isn’t a risk that should be taken.

Communicate with the Borrower

Once a loan has been given, it is important to keep an open line of communication with the borrower. This is a simple, cautionary step just in case there is any sort of issue with repayment. While this isn’t a required step, it is in the lender’s best interest.

As a peer-to-peer lending borrower, you will need to know a few similar things, and a few very different things.

Choosing a Lending Site

Like a lender, it is very important to choose a lending site that feels comfortable and secure. Creating a borrower profile involves submitting quite a bit of personal information, including a social security number. Choosing a site with a secure server is an absolute <strong>MUST</strong> to protect any financial and/or personal information entered.

Providing Information

Once a secure lending site has been chosen, it is extremely important to provide current, accurate, information. This really applies when it comes to listing information about income. Listing the most accurate information allows suited lenders to be matched with borrowers.

Borrow Smart

Borrowers should only borrow what they need. Requesting a larger amount often leads to difficulties in repayment.

Communicate with the Lender

Just like the last step for lenders, stay in contact with the lender. Borrowers should strive to always pay on time, if there is a difficulty, the borrower should notify their lender immediately. Communication allows for all parties to be aware of what is going on, and can help prevent late fees or fines.

Peer-to-peer lending is a wonderful investment opportunity for lenders, and a great way to borrow money as well. It can be extremely beneficial to all parties involved, especially if these simple steps are followed. Consider peer-to-peer lending for future investments or borrowing.

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