IS PEER-TO-PEER LENDING SAFE?

Peer-to-peer lending is like the new kid on the block which has taken the financial world by storm in recent years. For what seems to be risky from the outside, peer-to-peer lending is much safer than many of us seem to think so. During the past decade or two, we have seen the growth of B2B businesses and how they have created a new pathway for the businesses in the future. Peer to peer works similarly to b2b but instead of focusing on the businesses, peer to peer focuses on individuals to secure loans from the other person. Peer-to-peer lending cuts the financial institutions as the middleman and instead enables the individuals to obtain the loan directly. Now with no financial institutions involved, the most obvious question arises. Is peer-to-peer lending safe?
Let’s just say that during the peer to peer lending, the lenders do take on the most risk. There is a chance of default from the borrower and that makes p2p lending somewhat of a risky proposition. The default rate for the p2p lending in Q1 2022 was 4.45% while the default rate for the commercial bank’s loans was 1.50%. There is an obvious gap between the two and understandably so given the nature of business between the two. One big factor is that how banks do not give out loans to everybody and only people with a good credit score are considered. In p2p however, P2p lenders typically have lower credit requirements than traditional lenders, so borrowers can qualify for a loan even if they have less-than-perfect credit. P2P lending enables borrowers to avoid the troubles of bank bureaucracy. They are no longer at the mercy of a bank or financial institution. P2p lending further provides unsecured loans which are way more convenient to finish the transaction. P2p lending are using AI-powered platforms for financial transactions. These technologies have made the process very smooth and keep the borrower and lender both in the loop. In many cases, the lender does his due diligence and gives out loans to only those who are properly verified. P2P lending needs more information and operations compared with the bank loans. One reason is that P2P lending needs more information for credit audition. The other reason is that P2P lending allows lenders to choose a borrower, so the information flow is more complex than a bank loans. The p2p lending has now become a part of the mainstream investment and is now a key part of the portfolio of the investors. P2p lending is in an ambiguous state right now. We have seen how it has benefitted people under increased economic pressure during Covid-19 but on the other hand, there have been increased defaults too, some companies have even stopped the p2p services which have further dented the prospect of the whole process. People’s claim of P2p lending has a cloudier future has further accelerated. But at the end of the day, P2p lending is still here, it is indeed beneficial for an average citizen and it is easily the most creative financial disruptor in recent years. The new kid on the block may have many issues but it surely will improve with time and with it is already accepted by many, P2P lending will diligently work towards bridging the credit gap while building a favorable lending and borrowing climate.

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