Peer-to-peer (P2P) lending is a form of alternative financing, where individuals are able to lend and borrow money from one another without any kind of involvement of a traditional financial institution. This financial process is often known as social lending or crowd-lending as well. After all, it does form a business relationship between two individuals or an individual and a company. As per Scott Tominaga, the popularity of P2P lending has significantly surged in recent years due to the many benefits it provides to both borrowers and lenders.
Scott Tominaga sheds light on the advantageous aspects of peer-to-peer (P2P) lending
P2P lending often allows borrowers to obtain lower interest rates than they would typically receive from a credit union or traditional bank. P2P lenders do not have the overhead expenses that traditional financial institutions have to deal with. As a result, they are often able to provide loans at a lower cost. Today there are many P2P lending platforms available online, and a large number of them have a very efficient underwriting process that also contributes to lower lending costs.
P2P lending makes lending available to a broader group of people, like individuals who might not have access to traditional financial services owing to a lack of collateral or poor credit history. P2P lending may help improve financial inclusion and make sure that people who were previously excluded from the traditional banking system get the required credit. This form of lending may even allow lenders to enjoy good returns. P2P lending provides a unique investment opportunity for lenders. Through it, they can earn higher returns on their investment in comparison to traditional savings accounts or bonds. This is due to the fact that in many cases P2P loans have higher interest rates than traditional investment options. As a result, it can be an appealing choice for people seeking higher returns on their investment.
P2P lending platforms are generally more transparent in comparison to various traditional financial institutions, and they also provide a higher degree of control to the lenders and borrowers. For instance, lenders get the freedom to select which loans to fund, as well as track the performance of their investments in real time. On the other hand, borrowers get the benefit of viewing the loan details and comparing them with other options prior to making any decision.
In the opinion of Scott Tominaga, a variety of sophisticated risk assessment techniques are used by P2P lending platforms in order to evaluate the creditworthiness of borrowers. This invariably lowers the overall risk of default, and improves the likelihood of timely repayments. In comparison to traditional lending options, P2P lending platforms generally have a lower default rate, thereby providing additional peace of mind to the lenders.
By providing alternative financing options to individuals and businesses, P2P lending contributes to the diversity in the financial system. This form of lending can help lower the reliance on traditional financial institutions, as well as increase competition, which can lead to more innovative and customer-focused financial services.
