What is peer to peer lending?

BTCCredit
4 min readApr 14, 2019

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Pic courtesy- Knowledge.wharton

Commonly known as P2P lending, Crowdlending, or Social Lending, this form of lending is largely informal and decentralized. Peer to Peer lending is a model that facilitates credit transactions while eliminating the need of financial intermediaries such as banks. This model enables an individual lender to lend all or part of a loan that a borrower might require.

Five Ps of peer to peer lending

Before going deeper into peer to peer lending, let’s first understand what are the most important aspects of Lending? For a sound lending these Five Ps of Lending are considered:

  1. People
  2. Purpose
  3. Payment
  4. Protection
  5. Prospect

Be it any kind of lending, either bank lending or p2p lending, at the core of the transaction lies the integrity of borrowers and the lending company, the purpose of the lending should be transparent, easy payments for both the parties involved. The lender expects adequate protection of their funds. And after all both the lender and borrower should be benefited after the transaction is complete.

Image courtesy- Debt.org

Banking loan

The primary distinction between a traditional loan and a P2P loan is that traditional or personal loans are secured through banks acting as middlemen.

Image Courtesy- Devang Sadrani

These banks use certain assets, such as saving deposits of other customers, to finance loans. They then charge a high interest rate from the borrower, while also paying a relatively lower interest rate to the depositor. The difference between the interest charged and interest paid forms the bank’s incomes. Thus banks are able to use economies of scale and their specialization to earn huge profits.

Peer to peer lending

Cutting out the middleman works in favour of the borrower since she can access loans at a lower interest rate. On the flip side, the lender also has a vested interest since she will be earning a higher amount as opposed to through a bank deposit. Although there is still a company that facilitates this transaction, and that company must also earn profits, the degree of profitability is limited for online P2P platforms.

Image courtesy- fnews

As a whole, the P2P lending experience is quick, efficient and cheap for all parties involved. However, the risk for the lender can be substantially higher due to lax credit history standards expected of the borrower. This market also tends to be less volatile, but also less liquid as opposed to stock markets.

Now with the rise in popularity of cryptocurrency, it’s quite predictable that in coming future, p2p lending will mostly be done with cryptocurrency.

As in the latest poll conducted by IMF shows that most people today feel that they the major payment mode will be crypto payments in next few years. Total 37,660 Twitter users voted out of which 56% opted for cryptocurrency as future payments.

Btccredit aims to make that future a reality by building the required infrastructure and resources and making the complete process very easy and convenient such that users can lend and borrow their crypto with full protection of their funds. Btccredit software is built on Blockchain and all lending transactions will be guarded by smart contracts.

You can learn more about our initial stages here.

In the broader sense, we can foresee that a person sitting in a small village in Africa shall be able to borrow funds for his business from a lender staying in Japan, without having a bank account or any fiat conversion hurdles/fees etc.

For more info, Visit our website: btccredit.io

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