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Peer To Peer Lending: Should You Try It?

15 September 2016

Eva Kennedy

Peer to peer lending at its most basic is when your neighbor Bob loans you $100. When you pay him back, you give him an extra $10 for his trouble. Organized peer to peer lending is a little more complicated but runs on the same principal: regular people investing their money in loans for other people. If you are looking for a convenient and less expensive way to borrow and/or invest money, peer to peer lending may be for you.

Facilitator

Peer to peer lending requires a middleman, of course. The companies who engage in this type of finance have several advantages. They operate only online, so they have no physical facilities to maintain, cutting down greatly on their overhead. Of course, they also have an extensive reach and are able to offer their services to people around the country, using computer programs to match lenders and borrowers. They make their money by charging collection and loan fees. They also serve to provide some protection to both investor and borrower. 

Borrowers

This type of borrowing is appealing to people for a number of reasons. You can easily apply online, and if accepted, you can watch as various lenders fund your loan. These loans are unsecured, and your lenders will not know who you are. As a result, you won' t be contacted by the three, four, or more people or businesses who fund you. Often, you will pay a lower interest rate and will be able to get a term up to five years. These are real loans, however, so you must pay on time or face penalties and a strong hit to your credit rating. 

Lenders

If you are thinking of investing in peer to peer lending, you may reap big rewards. Of course, you can also lose your money. In order to protect yourself, you should not loan most of your money to just one borrower. You should spread your risk and make some low-risk loans along with higher interest offerings. You need to practice due diligence, but these loans are another potentially profitable enterprise for you to explore. 

Peer to peer lending is not anything new but still offers distinct advantages to everyone involved. Qualified borrowers can receive favorable unsecured loans and the investors are often able to make a nice profit. The business itself offers some cover for both parties. When things go as they should, everyone wins in this scenario. For more information, contact a company like Crossroads Investment Lending.

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