The world of P2P lending

P2P loans or loans between people, a completely online financing alternative, both for those looking for invest as well as for those seeking liquidity, without the intervention of traditional banking, a financing modality collective.

The P2P loans better known as loans between people, has become an alternative to traditional financing methods, medium online platforms, which connects investors who want to generate a return on their savings, with companies and individuals looking for a source of financing.

It is no secret that access to financing through traditional banking can be a limiting for many companies and individuals who want to access money to start their businesses. Projects.

But, Thanks to the advances of the internet in the world of finance, accessing financing has never been so easy, because P2P platforms are a true springboard for those looking for profitability investment in a safe way, as well as for those looking for a transparent and legitimate.

Let's see what this type of financing is about.

What are P2P loans?

The P2P loans, or loans between people (“peer-to-peer” in English), are a financing alternative in which Companies and people can obtain loans directly from other investors, without requiring the intervention of a traditional financial institution, such as banks or credit unions.

These P2P loans are based on the “crowdlending”, which is a type of crowdfunding for-profit, where individual investors lend money for the development of projects, in order to generate income from the money lent, The idea is that said financing is assumed by several people or companies, through small amounts of money.

How do P2P loans work?

P2P loans They work through online platforms of fintech companies, which connect investors willing to lend their money and generate a profit, with people or companies that need a source of financing.

For it, both borrowers and investors must register on the platform and provide personal and financial information so thatThe platform can evaluate your solvency and determine your credit capacity.

This way, Investors can choose who to lend financing to, based on information provided, such as the applicant's debt capacity, the classification of risk and details of the loan, including the amount requested, the purpose of the loan, and the rate of interest.

Generally, the loan is financed by multiple investors, each contributing a fraction of the total amount; Once the total requested amount is reached, the loan is considered funded, and then the platform disburses the money to the borrower, discounting any commission.

After, The borrower must make monthly payments, which include both principal and interest, These payments are distributed among investors according to the amount they have contributed; If a borrower defaults on their payments, the platform has its mechanisms to try to recover the money.

In this way, the platform obtains profits from intermediation services, lenders generate a return on interest generated and the borrower obtains the liquidity he needs, everyone winning at the same time. time.

Is it safe to invest in P2P loans?

Like any investment, it involves a risk, the same happens with traditional banking; What is possible is to reduce risk levels; To do this, it is important to look for P2P lending platforms that are authorized in your country, and seek financial advice.

However, there are very reliable web platforms, such as, P2P Empire, which helps you make comparisons of different P2P platforms, taking into account the level of risk, so that investors can make the best investment decision.

What types of projects do P2P loans finance?

The projects that this type of platforms finance can be very diverse, both business projects and projects personal, everything depends on the conditions of each P2P lending platform and its assessment of the level of risk per non-payment.

Advantages and disadvantages of investing in P2P loans

Investing in P2P loans has, as well as advantages, some disadvantages that should be considered before making an investment decision, such as:

Advantages:

• Passive income from the interest generated.
• You do not need a high amount of initial capital to invest.
• You can diversify your portfolio by investing small amounts in different loans.
• It offers the investor the ability to select loans based on their own risk and return criteria.
• P2P platforms are typically transparent about rates, fees, and borrower information.

Disadvantages:

• Risk of late payment.
• lack of guarantees, since, if the borrower defaults, there are no assets that can be liquidated to recover the money.
• If a P2P platform goes bankrupt or faces operational problems, it can affect the investor's ability to recover their money.
• As it is a relatively mobile financing modality, regulations may not be completely established in all jurisdictions.