A peer-to-peer (P2P) or peer-to-peer (“peer to peer lending”) loan is a loan that is brokered between private individuals (peer). This is largely dispensed with the bank as a middleman. On peer-to-peer platforms, the mediation and examination of loans are carried out, with the entire process usually being carried out via the Internet.
Peer to Peer Online Marketplace
The peer-to-peer online marketplace model offers individuals with a loan the opportunity to find private investors on a single platform to finance their loans. For this purpose, a project, including description and securities, can be set to convince interested. In most cases, the peer to peer platform itself determines the interest rate that the initiator has to pay by soliciting credit information. According to Grupeer Review , possible loan amount and maximum duration vary depending on the platform, but can usually be chosen by the borrower.
Investors can usually invest even small amounts in several P2P loans that are sympathetic to them. The project description and, of course, the interest that the borrower has to pay to serve as a decision aid. On some platforms, even a single investor carries an entire project; however, this type of peer-to-peer loan is rare because it carries greater risk to the investor. By spreading his investment over several projects, he minimizes his risk and maximizes his return.
Borrowers receive their loan only if enough investors have found and the full amount has been reached. If this is the case, the platform takes over the processing of the loan and pays it out to the initiator. Each investor then pays the amount he invested in the project to the platform. He usually receives his money in the form of monthly installments, which already include the return.
How do I get a peer-to-peer loan?
The process is similar on most platforms for P2P loans. You first register on the platform and then present your loan request and purpose. You also specify what interest rate you would pay. Investors can then actively decide on your loan request and make part of the amount available. If your loan request receives enough capital, you will receive a loan commitment from the participating bank, and the desired amount will be paid out. They then pay the monthly installments back to the bank. As a rule, investors remain anonymous, and you do not receive any information about the identities.
Frequently, the interest rates for a peer-to-peer loan are higher than for a comparable loan with a bank. In part, this has to do with the fact that the general creditworthiness of potential borrowers is usually slightly worse. Many have already tried to get a loan from a bank before opting for a P2P loan.
Frequently, peer-to-peer platforms also work with Schufa or other credit bureaus. People with poor credit ratings will only be successful on the platforms if they can offer a higher interest rate or deposit other collateral. But with the right strategy, customers with a lower credit rating are more likely to receive a peer-to-peer loan than a normal bank loan.