Peer to peer lending is a new financial innovation that is slowly gaining popularity across the nation and around the world. Most people are not yet familiar with how peer-to-peer lending works and are interested in learning about the process. There are some particulars about peer to peer lending that makes the technique different from traditional lending and knowing what these particulars are will help you make an informed decision about whether a peer to peer loan is right for you.
Peer To Peer Lending Companies
There are a number of companies that have been started in recent years that offer peer to peer lending to consumers. Some companies focus on a targeted set of borrowers or lenders while some others encourage any qualified borrower to apply. Most companies that offer peer-to-peer lending have streamlined their lending processes to make it as simple as possible for borrowers to apply for loans and for lenders to find loans to finance. The peer-to-peer lending process is similar across most peer-to-peer lending companies.
Creating A Loan Profile
The first step is creating a loan profile detailing the amount needed and the personal financial information of the person applying for the peer-to-peer loan. The borrower will have to disclose specific financial information that will be used to calculate the credit risk of the borrower and the results of this calculation will be provided to the lenders evaluating the peer-to-peer loan profile for financing to help them make an informed decision about the risk involved. The calculation determines where the borrower falls on a sliding scale of interest rates and fees.
The Lending Process
After the loan profile has been created and approved, the profile will be made available to lenders who will finance the peer-to-peer loan. The lender can choose the percentage of the loan that that they are willing to supply financing for at the interest rate assigned by the peer-to-peer lending company. Lenders generally have two methods of choosing which peer-to-peer loan applications to finance: manual selection and automatic selection. Manual selection lets lenders browse through individual profiles to find ones that they want to finance, while automatic selection allows lenders to provide a specific set of criteria and the amount that they would like to lend to borrowers that match these criteria and the choosing is done automatically.