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Posts Tagged ‘math’

Why choose peer to peer lending sites for loans?

By On October 23, 2011 Comments Off on Why choose peer to peer lending sites for loans?

Why go for peer to peer lending sites as a way to obtain a short term personal loan? The answer comes from the obvious benefits in this type of lending that is rapidly becoming popular. In the days of yore, when banks and similar lending institutions came up, they had a similar premise as peer to peer loans. Banks and such other financial intermediaries would collect small amounts of money from people, better known as depositors, and then lend them to people in the need. They would then collect the money from the borrower and pay the money back to the people who lent with higher interest, while retaining some fees for their services.
With time, banks found that there were other avenues to make money like from investors in the market rather than common people, and also from the government. This way, they could earn more interest on the loans. Now, banks have further increased their scope for profits by acting as brokers for insurance, mutual funds and other financial instruments. They also take money from the government at very less rates and instead of just loaning them to individuals or business, are investing in government projects and other lucrative avenues. The humble end consumer does not get much preference for loans like it used to at one point of time.

To fill this void, peer to peer lending sites have started that help people together on a simple platform, based on the Web 2 0 concept. This brings the borrower come into contact with potential lenders who are registered members on the site. They go through the borrower’s application and then take a call on paying the individual collectively.

The borrower can easily benefit from peer to peer lending when it comes to taking loans for small business requirements (below $25000) and additionally, he or she can also bypass the banks and other lending institutions that waste the person’s time and energy.

The concept of peer to peer lending leverages the strength of social network that unites individuals and professionals from various communities and backgrounds for a common goal to financially help the ones who are needy, while at the same time benefitting from the returns. The risk connected with the lending is also negligible because the repayment money can be auto-debited from his bank account. Also, there is community support for the borrower if he or she is not able to pay money on time.

The lenders are into this business deal from the point of investing; they have a certain amount of disposable income that they are willing to lend. If they invest the money in a bank or a similar financial institution, they can only earn a marginal interest rate but if they invest in the peer to peer lending company, they can get three to five times the money.
There is a humane touch in this form of lending, the lenders get to hear your complete story and extend the money, empathizing with the condition of the borrower. But in a traditional financial institution, the lender does not really care about your needs or goals, getting the money back is their only concern. In the case of peer to lending, the person who lends the loan feels nice about funding your project or giving financial aid. To sum it up, in this kind of system, you are dealing with someone with a human touch, not someone who is aloof and rigid like a loan officer.