P2P lending is the essential mechanism by which people who want to make loans connect with those who need money. Borrowers pay interest and investors/lenders earn interest.

Since the transaction takes place directly between the two parties through a website or app, it eliminates the need for financial institutions like banks to act as an intermediary.

️P2P lending is done through a website that directly connects borrowers and lenders. Those who want to lend money open an account on a P2P platform as a lender. And those who need a loan register as a borrower.

These platforms then evaluate borrowers on different aspects. They don’t limit their assessment to just credit scores. They carry out their checks, in particular:

1. employment of the borrower
2. income
3. credit history, etc.

Additionally, by making extensive use of technology, these platforms also capture borrower habits through social media activities, app usage, etc.

The risk of peer-to-peer lending is the risk of borrower default, i.e. the borrower does not pay the interest or principal amount.

If a borrower defaults, a P2P platform can help lenders recover and file a legal notice against the defaulter. But that's all the platform can do. This does not guarantee recovery of money from lenders.
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#banking #loans #interest #passiveincome #financialeducation #investingforbeginners

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