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Best Peer to Peer Lending Platforms - What is Peer to Peer Lending and Why is Peer to Peer Lending Attractive?

Peer to Peer Lending

The explosive growth of Internet technology, and in particular the development of the Web 2.0 concept in which citizens anywhere in the world can communicate through blogging and social media, has given rise to a revolutionary new development which could result in conventional lending being taken out of the hands of the banks and the credit companies.

Peer to peer lending is, as the name suggests, a means through which ordinary people can lend any amount of money, of their choosing, to other ordinary people who wish to borrow. This must be differentiated from person to person charity, which operates along similar lines but is not a profit making exercise.

The peer to peer lending process is made possible by the creation of peer to peer sites such as Zopa, RateSetting and Funding Circle. These sites match lenders with borrowers, carrying out credit checks on the latter and charging a small percentage in commission which is incorporated into the interest repayment rate. Typically the interest charges are considerably lower than those sought by the traditional lending banks.

Although there is a risk element involved from which lenders, unlike banks and financial institutions, receive no protection from the Financial Services Compensation Scheme (FSCS), the risk is minimised because the money provided by lenders is spread across borrowers rather than being focused upon any one particular borrower. The default rate involved in peer to peer lending is estimated to be in the region of 0.5 per cent, which is covered many times over by the interest paid by borrowers who honour their repayments.

Many lenders are investing considerable sums into peer to peer lending with a view to making a serious income from this massively expanding phenomenon. However the beauty of it is that at the opposite end of the scale investors with as little as £50 to lend are able to participate.

Thus, thanks to web technology, everyday people are able to help out those in need whilst being able to make a reasonable above-inflation profit for themselves and at the same time remaining relatively safe from the prospect of large-scale default. For their part borrowers can get good low-interest terms on a loan without having to deal with an increasingly unpopular and untrusted banking industry.

It is a best of all worlds development which seriously promises to undermine the lending industry as we know it, with businesses as well as private individuals climbing aboard and getting involved.

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