A trust model for online peer-to-peer lending: a lender’s perspective | Semantic Scholar (2024)

FAQs

What is the peer-to-peer lending model? ›

What is Peer-to-Peer (P2P) Lending? 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.

With over 200 0000 members, TrustBuddy is the biggest Peer-to-Peer provider of short term loans in the world. TrustBuddy is the only Peer-to-Peer lending company in the world to be publicly traded and is listed on the NASDAQ OMX First North since 2011.

As with any high-return investments, there are risks with P2P lending. Default rates tend to be high with this class of loans, which can lead to losses for investors. Fees charged by the platforms may eat into any potential returns as well.

Peer-to-peer lending often offers lower interest rates and more competitive fees, but also carries higher investment risks compared to traditional lending and charges fees to both borrowers and lenders.

Peer-to-peer model is, as its name states, completely decentralised. This model functions without some central authority governing and enforcing trust on its peers (users, computers etc). Instead, the decision to trust or not to trust someone is left to the peers themselves.

In a P2P network architecture, each computer has the same responsibilities and capabilities. Since there is no server, the computers connect with each other in a workgroup to share files, printers and internet access. This architecture is practical for workgroups of 12 or fewer computers.

This means a solid portfolio of P2P loans can generate a steady stream of passive income. Higher Yields – Without question, the single most attractive aspect of P2P lending for investors is the potential for higher yields. A carefully curated portfolio of loans can potentially earn 10% annually or better.

LendingClub is a peer-to-peer—or marketplace—lender founded in 2007. As the largest online lending platform for personal loans, LendingClub has worked with over 3 million customers and funded more than $55 billion in loans.

Borrowers should be cautious of additional fees and potentially higher interest rates when considering a P2P loan. Lenders face the risk of losing their money if the borrower defaults on the loan.

Due to consumer protection laws, it is difficult for lenders to contact borrowers directly, even in the case of a default. P2P platforms do not enable the lenders to directly interact with borrowers through the system, based on legal terms and privacy policies.

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.

A peer-to-peer (P2P) economy is a decentralized model whereby two individuals interact to buy sell goods and services directly with each other or produce goods and service together, without an intermediary third-party or the use of an incorporated entity or business firm.

P2P lending (peer-to-peer lending) is a type of platform that allows participants to borrow and lend sums of money without having to rely on a conventional financial institution to control transactions.

Peer-to-peer payments (sometimes referred to as person-to-person payments) are digital payments between two individuals, a type of mobile banking. The funds are 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.

The main peer-to-peer lending risks are: Yourself (psychological risk). Not enough diversification (concentration risk). Losing money due to bad debts (credit risk).