You may have heard of P2P. What exactly does it mean?
It is an abbreviation of English words peer-to-peer. In the world of computer networks, “peer” computer systems are connected to each other via the Internet. In the world of P2P loans, it can also mean person-to-person. And so we got to the result of our puzzle. These are loans where the bank is left out of the transaction and people borrow money from each other. In the family, it is simple among friends, maybe each of us in our lives at least once borrowed someone or someone.
Can I work collective loans?
But the question is, how can it work among strangers? We will explain this in the next section. There are people who have the money they would like to invest. And they want to earn more than the bank offers them. On the other hand, there are people who would borrow. How do they get together? Using a provider. They are the ones who use the website to offer a platform for these transactions, where investors ‘offers and debtors’ requests meet. Investors want to realize a better return than from banks, they offer their funds to the intermediary site. On the other hand, people who need money will surely become visible. Borrowers pay lower interest than the bank, investors pay higher interest and the intermediary retains a certain amount of the interest that the borrower pays.
Of course, the investor wants to minimize his risk. Therefore, collective loans work by investing in what amount they want to invest and lending that amount to several borrowers. This will reduce their risk of default or part of their debt by some debtor. Therefore, borrowers also receive a loan from several investors. This is how a collective loan works.
Without an intermediary platform, collective lending could not work. The commission runs a P2P platform, a website.
What types of P2P loans do we know?
There are two types of P2P loans. The first type of collective lending works in such a way that the intermediary determines the conditions under which it can receive the loan on the basis of the information received from the debtor, according to its digital footprint. The debtor either accepts them or not. Finally, they classify debtors according to their creditworthiness into categories and the investor can choose which category he wants to invest in. The higher the yield, the higher the risk. Finally, the intermediary distributes the money to the borrowers who can start repaying the loan in monthly installments.
The second type works by auction. Debtors enter their request. Investors, in turn, examine information about borrowers and their requirements and choose the borrower to whom they are willing to lend.
Let us clarify whether we actually need collective loans.
It is a common form of lending in western countries. In our country they are not so common, even though there are already intermediaries. Why aren’t they popular yet?
There may be several reasons:
– People do not trust this form of lending. This is understandable, especially from the investor side. They may feel that there is no guarantee that the borrowed money will be returned to them because the investor is not engaged in the recovery of invalid loans.
– For this reason, loan demand may be higher than investor offers.
– Candidates are generally informed about their lending options at their bank and not on the Internet.
If investors get really higher returns than in banks for traditional time deposits and borrowers turn lower interest, collective lending will have its place in the financial market and .