What is P2P Lending? How is it Different from Traditional Lending?

P2P lending or Peer to Peer lending is afast-growing lending system that’s actually giving the traditional lenders, i.e. the banks a run for their money. But what is it exactly?

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As the name suggests “Peer to Peer” lending is a system in which you get a loan directly from an individual rather than from an institution such as a bank. Although P2P lending platforms do have a system of their own and they also follow certain rules and procedures for loan sanctioning, they are usually more forgiving and simpler that the traditional banks.

The following are the key differences between a traditional lender and a P2P lender:

Interest Rates

P2P lenders are usually able to offer better interest rates than traditional banks. This is because most P2P lenders are simply connected to a P2P platform through which they sanction loans and receive their profits. There is no brick and mortar structure in P2P lending. However, banks have a great number of costs including employee salaries. Thus, they have to keep their interest rates slightly higher.

Loan Process

The loan approval process in P2P lending is less complicated than traditional banks. In fact, many P2P platforms offer loans even if the applicant has a bad credit score. However, this kind of thing is almost never overlooked by a traditional lender.

Convenience

In P2P lending an applicant can apply for a loan online, give required documents to a representative who comes to their place to collect them and get the money in their account. Thus, it’s really simple and easy in this system.

In traditional lending, one has to go to a bank in person and submit applications, documents, etc. The disbursal time is also usually longer than P2P lending.

It’s not hard to see why P2P lending is trending. However, this doesn’t mean that banks don’t have their advantages. Since they are bigger in scale they can offer a variety of investment instruments and other kinds of advantages.