Peer to peer lending has been around for the past decade or so, and is known by many other names. Social lending, person to person lending, and P2P lending all mean the same thing. What exactly is this type of loan and how does it work? Many individuals, especially those with less than perfect credit are finding it a great option compared to other loan offers. When we think of peer to peer lending, we think of the television show Shark Tank, however lending isn't necessarily for a business venture, and investors do not get any stake in what the person plans to do with their loan. Let's take a further look at P2P lending.


An official and basic definition

According to Investopedia, peer to peer lending can be described as a method of debt financing which enables individuals to both borrow and lend money. They do so without the use of any official financial institution as an intermediary. Peer to peer lending removes the middleman from the process, but involves more time, effort, and risk than normal banking lending scenarios. When you make sense of this type of lending you see that there are investors and borrowers. No high banking institute is used at all, but rather people who have money are the ones to fund those in need of a certain dollar amount.


Peer to peer lending online

If you don't go to your standard bank to try and get a loan, then where do you go? It is not even as easy as walking into a place for title loans in Dallas, and walking out with your loan in hand. Instead, you use the internet to borrow money from investors. These investors never meet you, but are able to borrow out money based on your credit information. Today there is a variety of peer to peer lending companies available online and across the globe. In the United States, the two best known peer to peer lending websites are Lending Club and Prosper. What is also neat about peer to peer lending, is that there are websites that will help you with direct P2P lending. This type of lending is when a friend or family member is going to borrow you money, and you want a formalized payback agreement. National Family Mortgage and LendingKarma are great websites if you want to go that route.


Peer to peer lending a better option

So is peer to peer lending really a better options for individuals who need a loan? Financial experts say it could definitely be a good deal, especially because you get a way better interest rate than you would going through a traditional bank or even using a high limit credit card. It is a win, win situation because the lenders get a higher return than if they kept money in a savings account or certificate of deposit.

If you need a loan, but do not want to go the traditional route, a peer to peer loan is definitely something worth looking into!