What is P2P Lending? What are the Advantages and Risks?

Surely you have heard of the form peer-to-peer lending (P2P Lending) but have not really understood its nature. Then the following article will help you understand what peer-to-peer lending is and the information related to this form of loan for your reference.

What is a Peer-to-Peer Loan?

Peer-to-peer lending in English is Peer-to-peer Lending, abbreviated as P2P Lending or P2P lending. In essence, this is a lending model applying a digital technology platform where borrowers and lenders will be directly linked to conduct money lending transactions, without having to go through an organization. credit or any bank.

What is peer-to-peer lending (P2P Lending)?

Peer-to-peer lending will help people diversify their investments with higher interest rates than banks. There are many large peer-to-peer lending companies in the world.

For example, Lending club, Prosper (USA), Zopa, Dianrong, Lufax, Funding Circle (UK), Ppdai (China), etc. Each company has a different way of assessing borrower's credit rating. Thus, peer-to-peer loans can be both secured and unsecured. Around the beginning of the 21st century, this form of financial lending really developed strongly, gradually becoming the trend of the current credit market.

See also: What is a syndicated loan?

Features of Peer-to-Peer Lending – P2P Lending

Today, with the development of technology 4.0, peer-to-peer lending becomes even simpler when all of the above work is automated. Peer-to-peer lending has the following outstanding features:

WOMENInvestors can choose potential borrowers if they have a P2P platform.

Make a higher profit than trading through a bank or any other financial institution.

The P2P lending company will act as an intermediary connecting people.

All transactions are always done online quickly and conveniently with just a few very simple steps.

It is not necessary for the lender and the borrower to have a prior acquaintance.

This form of loan is suitable for small and short-term loans to help low-income people with small investment capital.

Investors can easily track their stable profits from borrowers and especially the processes are compliant with the law.

Process payments from borrowers and pass payments and profits to investors into loans.

Developing mortgage credit models, managing, evaluating information and rating borrowers' credit based on communication systems and social networks integrated in specialized software.

In peer-to-peer lending, borrowers and lenders work directly with each other

Services Offered By Peer-to-Peer Lending Company

The service identifies a customer's information, occupation, bank account and income.

Responsible for processing payments from borrowers and, at the same time, transferring payments and profits to investors in loans.

Developing and providing credit models for unsecured loans, managing, evaluating information and rating borrowers. This is done based on communication systems, social networks, integrated in specialized software.

Find new investors and borrowers.

Benefits of Peer-to-Peer Lending

Peer-to-peer lending operations are currently being developed on a large scale in many countries, thanks to the great benefits that it brings to both investors and borrowers as follows:

With Investors

Investors have more opportunities to diversify and manage risk better because they can give installment loan in different forms with different deadlines. There is absolutely no term risk because the loan term and the matched borrowing period are perfectly matched.

Investors will be provided with a variety of consulting services, in many cases – service providers will act as a bridge as a collection agency for the investors themselves.

With Borrowers

Borrowers with peer-to-peer loans will be able to reduce interest costs. The reason is because the services provided work on the platform Fintechwhich helps to reduce the costs for building distribution and operating networks compared to traditional channels.

Some other benefits:

The procedure is quick, no frills, no paperwork, quick approval.

As long as you have a Smartphone with an Internet connection, you can borrow money through the model Peer To Peer without having to move.

Flexible loan, low interest rate.

Various packages Quick loan just need ID card with preferential interest rates.

But beware of disguised black credit institutions.

Question: Can 19 years old get a loan?? Where are you?

Risks of Peer-to-Peer Lending

Besides the outstanding advantages and benefits, peer-to-peer lending also has the following risks:

Legal risk: Service providers are at risk of being banned or restricted from operating because many countries have not yet recognized the legality of the peer-to-peer lending model.

Risk of capital loss or late payment: Because they are not insured as safe as reputable banking channels, investors' loans may be lost or delayed if the borrower falls into the situation of being unable to repay the loan.

Liquidity risk: Peer-to-peer loans can only be repaid at maturity, and neither the lender nor the borrower can cancel the contract.

Risks when operating the system: The operating foundation of peer-to-peer lending is technology development, when the software crashes or stops working, the level of risk will be very high. If the market does not operate within the legal framework, investors may also face the risk of losing their capital.

Moral hazard: The service provider acts as an intermediary, acting as a crowdfunding organization and then lending. Therefore, it is entirely possible that the investor is ambiguous with his role; use hype to attract customers; colluding with borrowers to create fake documents; using investor's money not in accordance with the original borrowing purpose; creating a term gap by improperly matching loan terms; tacitly shaking hands with official credit channels to venture into the peer-to-peer lending market to eat the difference… All of these possibilities are possible if suppliers and borrowers do not follow the rules properly. ethics, especially when the legal framework is unclear and investors' understanding is limited.

Current Situation of Peer-to-Peer Lending in Vietnam

In Vietnam, the boom of financial technology companies and the peer-to-peer lending model began to form and develop around 2014 with more than 40 companies operating. However, in Vietnam, the legal system is for borrow money online not yet complete and clear, which leads to many complicated problems.

The situation of peer-to-peer lending in our country

In fact, peer-to-peer lending activities in Vietnam still have many limitations, such as: advertising is not transparent and clear about profit levels, providing incomplete or inaccurate information about loans. risks that participants may face or offer unrealistically high interest rates to entice more investors to participate…

Moreover, in the current unsecured legal condition, if there is a dispute over the inability to claim the loans, investors will lose nothing and it will be difficult to prosecute liability from companies. providing peer-to-peer lending services…

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Conclusion

Through this article, you probably already know the necessary information about the form peer-to-peer loan. If you need further assistance in financial matters, please contact us for the best service.

Information edited by: banktop.vn