Sergey Vasin, COO, Blackmoon
In 2017 the US peer-to-peer market reached USD 26.6 billion in terms of total loan amount issued, while in 2018 it is expected to achieve a whopping USD 38.9 billion, according to AltFi data.
This industry provides investors with solid returns and borrowers with accessible credit.
Peer-to-peer (P2P) lending is a way to bring together lenders and borrowers on one marketplace and give them an opportunity to contact directly. This direct contact helps to minimize the need for an intermediary, thus reducing the cost of operations. Lending and borrowing now become two sides of one action instead of being completely separate processes. Another source of cost reduction is the web-based nature of the business, when the majority of operations that would normally be performed in a bank’s branch – such as loan application, scoring and even loan agreement execution – now happen online. All this helps platforms to offer interest rates to lenders that are higher than they would normally receive by making a bank deposit or buying other investment products offered by banks, while borrowers receive lower rates and enjoy simpler underwriting processes.
A marketplace model of lending has existed in the market for years, with the first platform, Zopa, being founded in February 2005 in the UK. Zopa was soon followed by Prosper and Lending Club in USA. The latter is currently the biggest player of the market and the first to gain SEC approval after the Securities and Exchange Commission set a number of rules in 2008.
Sergey Vasin
The rules of the game are quite simple. To invest you simply pick one or several platforms you like the most, register an account, and that’s it! You can start operating right here. The only question left is how to decide which people/projects/companies are worth investing in? How to ensure that you will gain profit and not lose the money you lent? To succeed you have to become an expert in this field. Understand the scoring, credit decision-making, prepayments, valuation of underlying, etc. Moreover, you will have to spend time to analyze available options repetitively.
If that’s not the style of investment you were looking for, there are professional investment funds ready to help you. Investment funds operating in the peer-to-peer lending market have automated scoring models in place. Enlightened with knowledge and expertise, funds represent the second line of defence by choosing the best investment objects from those previously approved by platforms themselves. Funds are accumulating investments and splitting them between a number of borrowers, so that even if one of them defaults, it will have a minimal impact on the loan portfolio.
One great example is the Prime Meridian Real Estate Lending Fund, which has been operating in the real estate peer-to-peer lending market since February 2016. The Fund’s objective is to earn a net return of 8% annually for investors, while maintaining low default and annualized loss rates, from a diversified, secure real estate loan portfolio of first lien loans purchased from multiple online/Marketplace Lending platforms in the USA.
And it is now possible for crypto investors to get access to this industry with the leading expert in the field and minimum investment as low as BTC 0.01 without leaving blockchain. You can find more details about Prime Meridian Real Estate token offered by Blackmoonhere.
Risk Warning:
Due to the fact that cryptocurrency markets are unregulated and decentralized, the provision of our services is not governed by any specific regulatory framework or investor protection rules. Investment in cryptocurrencies carries high degree of risk and volatility and is not suitable for every investor; therefore, you should not risk the capital you cannot afford to lose. Please consult an independent professional financial or legal advisor to ensure the product meets your objectives before you decide to invest. Under no circ*mstances shall Blackmoon have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to the asset tokens or (b) any direct, indirect, special, consequential or incidental damages whatsoever. Please consider our Risk Disclosure and our Terms of Use before using our products. Social media posts about Blackmoon platform are generated by members of Blackmoon community and do not contain advice, recommendations or solicitation on behalf of Blackmoon. You are not permitted to use, alter or reproduce or distribute any of Blackmoon images and/or content, including but not limited to text, graphics, video, audio, software code, interface design or logos without our prior written consent. All rights reserved © – Blackmoon Financial Group 2018
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FAQs
Peer-to-peer lending is a form of direct lending of money to individuals or businesses without an official financial institution participating as an intermediary in the deal. P2P lending is generally done through online platforms that match lenders with the potential borrowers.
How reliable is peer-to-peer lending? ›
So, is peer-to-peer lending safe? Like any investment, it does put your capital at risk. However, given the predictability of the repayments from borrowers and other safeguards in P2P, other forms of investment are often risker.
Is peer-to-peer lending a good way to make money? ›
P2P lending can be riskier than traditional lending. That's because there's a higher risk of default, so lenders are more likely to lose money. In exchange for the additional risk, however, P2P lenders usually charge a higher interest rate, which can help offset the risk of losing money.
Is peer-to-peer lending successful? ›
With a well-informed approach, P2P lending can serve as an effective means to access cost-effective credit or expand and diversify investment portfolios. If you are wondering about how to apply for a business loan in India, you can visit IIFL's website to avail of business loans at attractive interest rates.
Is it safe to invest in P2P lending? ›
Is P2P lending safe? Peer-to-peer lending is riskier than a savings account or certificate of deposit, but the interest rates are much higher. This is because those who invest in a peer-to-peer lending site assume most of the risk that banks or other financial institutions normally assume.
How to get a loan from peer-to-peer? ›
Applying for a peer-to-peer loan is similar to other loans, and you'll typically take these steps:
- Check your credit. Review your credit report and score so you know which lenders you can qualify with. ...
- Shop around. ...
- Get pre-approval. ...
- Submit an application. ...
- Wait for loan funding. ...
- Receive the loan and begin repayment.
Minimum Credit Score: The minimum credit score is the score you need to qualify for a loan from a particular lender. In general, P2P lenders tend to look for credit scores of around at least 600. However, each lender has its own requirements.
Can you lose money on peer-to-peer lending? ›
If the borrower defaults, lenders often lose their money
While some peer-to-peer loans are secured, they are most often unsecured loans. This means the borrower isn't borrowing against any collateral, and if they can't pay their loan, the lender loses their money.
How much money do you need for peer-to-peer lending? ›
The amount of money you need to participate in P2P lending varies depending on your chosen platform. Some platforms allow you to start with a relatively small investment, while others may have minimum investment requirements. Generally, you can begin investing in P2P loans with as little as $25 to $1,000 or more.
Is peer-to-peer lending illegal? ›
Because, unlike depositors in banks, peer-to-peer lenders can choose themselves whether to lend their money to safer borrowers with lower interest rates or to riskier borrowers with higher returns, in the US peer-to-peer lending is treated legally as investment and the repayment in case of borrower defaulting is not ...
RBI guidelines allow any individual, HUF (Hindu Undivided Family), firm, society, or company to participate in a P2P lending platform. As per new guidelines, the RBI raised the investment limit for individuals by five times to Rs 50 lakhs.
How to make passive income from peer-to-peer lending? ›
Borrowers' interest payments generate money during the loan period. This income can be a source of passive cash flow, especially if investors have a diversified portfolio of loans. However, the amount of interest earned depends on the loan amount, the interest rate and the borrower's repayment behavior.
What are the disadvantages of P2P lending? ›
Disadvantages Of The P2P Lending Platform
Withdrawals and exits pose challenges as most loans lock in capital for 1-3 years. The secondary market for P2P loan trading is limited in India. Despite RBI regulation, fraud risk, data protection, and platform shutdowns persist.
How long does it take to get a peer-to-peer loan? ›
If you're interested in P2P lending, the first step is to research the lenders you want to work with and prequalify. If you're offered competitive terms for your financial situation and apply, you can expect the funds within a few business days.
What is a disadvantage of taking out a home equity loan? ›
Home Equity Loan Disadvantages
Higher Interest Rate Than a HELOC: Home equity loans tend to have a higher interest rate than home equity lines of credit, so you may pay more interest over the life of the loan. Your Home Will Be Used As Collateral: Failure to make on-time monthly payments will hurt your credit score.
What is P2P used for in banking? ›
P2P stands for peer-to-peer, which means that a payment is made directly from one person to another. With P2P, there's no need for intermediaries like banks or credit card companies. Instead, P2P payment systems use technology to facilitate transactions between individuals.
What is the difference between peer-to-peer lending and banks? ›
Peer-to-peer (P2P) lending platforms and traditional lenders both offer online loans. The primary difference between the two is that P2P platforms connect investors who lend money to borrowers trying to get a loan. Traditional lenders use their money to finance loans directly.
How do peer-to-peer payments work? ›
Q: What are Peer-to-Peer (P2P) payments? Peer-to-peer payments (P2P) are digital transactions between two individuals. This type of mobile banking allows funds to be transferred directly from one person's bank account, checking account, credit or debit card, or payment app to another person's bank account or app.
