Peer to Peer Loans As Debt Consolidation

However, the birth of its modern form is the result of by-product internet technologies, especially Web 2.0, and the development of the market niche. This was further boosted by the global economical crisis or recession which began in 2007. P2P lending platforms offered credit to individuals and businesses at the time when banks and other financial institutions were having fiscal difficulties.

Peer-to-peer (P2P) or social lending websites have risen from the ashes of the recession and capitalised on the dislike that many have for our current financial institutions. Essentially P2P lending sites cut out the middle-man and allow you to lend directly to other individuals or businesses. You choose how much you want to lend, who you want to lend to, and how much interest they should pay.

The first person-to-person lending company to launch was Zopa in the United Kingdom, in 2005. Zopa is considered a big fish in the P2P market and makes up about 2% of the unsecured personal loan market in the UK. The site allows you choose the type of borrower, the level of risk you are prepared to take on, and the interest rate you wish to receive. Your money is then lent out to several different approved borrowers in order to reduce the impact of any defaults. When a repayment is made you receive a slice of your capital investment back, along with some interest. Zopa will also chase down any overdue payments either through a debt collection agency or the courts if necessary. However, despite these precautions some defaults still occasionally occur and can eat into profits.

A similar website is Funding Circle but its key difference is that you are lending your cash out to small businesses and not individuals. All borrowing companies are identity, fraud, and credit checked by the site and must have at least two years of audited accounts to be eligible for a loan. The business sets up a request for a loan and indicates their target interest rate. Lenders are then invited to offer their cash and specify what rate they wish to receive. The key attraction of Funding Circle is that you can view the type of business that your cash will go to, inspect their accounts and ask questions about what your money will be used for.

Investing with peer to peer lending is a fairly new concept, providing many benefits for the investor. This type of investing has become an alternative way to invest money because banks are no longer involved, giving the investor a better return on their money. Here are the top 5 reasons why someone would want to invest their money using peer to peer lending.

1. Knowing exactly where your money is being invested

Peer to peer lending, or p2p lending for short is gratifying because you are investing in other people. Your money is being used by other people who are trying to improve their lives, whether it is through getting out of debt, funding a business or using that money to improve their home. Each borrower has a story, and based on that story, you can choose a borrower that you can relate to or just want to help out.

2. Begin investing with just $25

If you have at least $25 to invest, then you can start investing in peer to peer lending.