What Is Peer-to-Peer (P2P) Lending?
Peer-to-peer (P2P) lending makes it possible for individuals to obtain loans directly from other individuals, without going through a bank or other financial institution. The proliferation of websites that facilitate P2P lending in recent years has greatly increased its adoption as an alternative method of financing.
P2P lending is also known as "social lending" or “crowd lending.” Major players in the field include such platforms as Funding Circle, Kiva, Lending Club, Prosper, and Upstart, among others.
Key Takeaways
- Peer-to-peer (P2P) lending allows individuals to lend money to or borrow money from other individuals without going through a bank.
- P2P lenders are individual investors who typically want a better return on their cash savings than they would earn with a bank account or money market fund.
- P2P borrowers seek an alternative to traditional banks or a lower interest rate than they could get at one.
- The default rates for P2P loans can be much higher than those in traditional lending.
- P2P lending platforms also impose fees on borrowers or lenders and sometimes both.