Understanding Peer To Peer Personal Loans

Understanding Peer To Peer Personal Loans

Understanding Peer To Peer Personal Loans photo 0

As much as this old world of ours changes, there are some concepts that work so well they keep returning, and peer to peer personal loans may be one of them. Eons ago, before the development of formal trade and commerce, there existed no banks or other lending institutions. Based on who needed the money, and who had a bit of money they were willing to lend out, lenders and borrowers usually located each other in an informal marketplace. It may not have been called it at the time, but this was the basis of peer to peer loans. As our society and its institutions became increasingly formalized, specific businesses were established for the main purpose of lending funds in exchange for the payment of interest. Most of these lending institutions got their funds, in turn, from other people in the community who wanted to have a place to put their money and earn interest. Banks or other financial institutions took advantage of this by using the deposited funds and lending it to people who needed funds. And, needless to say, they got to retain the difference as their profit.

But many factors in the lending business have made people revisit the old concept of peer to peer personal loans, with the result that both lender and borrower can gain an advantage. The official term for this is disintermediation, since the intermediary of the lending institution is now removed. Today’s peer to peer personal loans are not limited to people in the same locale, since they can be administered on an online marketplace, where those in need of funds can be matched with those who are willing to lend. Sometimes these online marketplaces opearate like auction sites and act as a conduit for the borrower to find the lender. Today’s consumer is very usedto this concept due to marketplace sites such as Ebay, but instead of hard goods or e-goods, buyers and sellers are really dealing in money for sale. When the financial institutions are taken out of the picture, so is their profit, and that difference is split into savings for the borrower, and increased profit for the lender.

Understanding Peer To Peer Personal Loans photo 1

Lenders especially like the notion of peer to peer personal loans due to the unique risk arrangement available. Frequently, personal loans are split up so that a lender lends his money to a number of different borrowers and, conversely, the borrower is receiving his loan from many different lenders. A good example would be a young man who decided to take out a loan for $1,000 for an engagement ring for his fiance. Many investors on the peer to peer lending site may have $1,000 they are interested in investing. But what will happen is that the lender of $1,000 will only lend $100 to you for your dream purchase. He may lend another $100 to another individual (who is borrowing $1,000 in total) to consolidate his debt, and another $100 to someone else for home repairs, and on and on for various kinds of personal loans.

His $1,000 investment is, in this manner, going to be spread out over ten different risks, so that the overall risk is much lower than it would otherwise have been. The other side of the coin is that the borrower has such a wide array of lenders that his chances are greatly increased of getting that personal loan in the first place.

Understanding Peer To Peer Personal Loans photo 2

That this concept of direct personal loans from one person to another has been reborn is nosurprise, since parties on both sides of the transaction benefit greatly.

Get a loan today with engagement ring financing other portfolio plans at personal loans

Understanding Peer To Peer Personal Loans photo 3

Leave a Reply