Sergey Vasin, COO, Blackmoon
In 2017 the US peer-to-peer market reached USD 26.6 billion in terms of total loan amount issued, while in 2018 it is expected to achieve a whopping USD 38.9 billion, according to AltFi data.
This industry provides investors with solid returns and borrowers with accessible credit.
Peer-to-peer (P2P) lending is a way to bring together lenders and borrowers on one marketplace and give them an opportunity to contact directly. This direct contact helps to minimize the need for an intermediary, thus reducing the cost of operations. Lending and borrowing now become two sides of one action instead of being completely separate processes. Another source of cost reduction is the web-based nature of the business, when the majority of operations that would normally be performed in a bank’s branch – such as loan application, scoring and even loan agreement execution – now happen online. All this helps platforms to offer interest rates to lenders that are higher than they would normally receive by making a bank deposit or buying other investment products offered by banks, while borrowers receive lower rates and enjoy simpler underwriting processes.
A marketplace model of lending has existed in the market for years, with the first platform, Zopa, being founded in February 2005 in the UK. Zopa was soon followed by Prosper and Lending Club in USA. The latter is currently the biggest player of the market and the first to gain SEC approval after the Securities and Exchange Commission set a number of rules in 2008.
Sergey Vasin
The rules of the game are quite simple. To invest you simply pick one or several platforms you like the most, register an account, and that’s it! You can start operating right here. The only question left is how to decide which people/projects/companies are worth investing in? How to ensure that you will gain profit and not lose the money you lent? To succeed you have to become an expert in this field. Understand the scoring, credit decision-making, prepayments, valuation of underlying, etc. Moreover, you will have to spend time to analyze available options repetitively.
If that’s not the style of investment you were looking for, there are professional investment funds ready to help you. Investment funds operating in the peer-to-peer lending market have automated scoring models in place. Enlightened with knowledge and expertise, funds represent the second line of defence by choosing the best investment objects from those previously approved by platforms themselves. Funds are accumulating investments and splitting them between a number of borrowers, so that even if one of them defaults, it will have a minimal impact on the loan portfolio.
One great example is the Prime Meridian Real Estate Lending Fund, which has been operating in the real estate peer-to-peer lending market since February 2016. The Fund’s objective is to earn a net return of 8% annually for investors, while maintaining low default and annualized loss rates, from a diversified, secure real estate loan portfolio of first lien loans purchased from multiple online/Marketplace Lending platforms in the USA.
And it is now possible for crypto investors to get access to this industry with the leading expert in the field and minimum investment as low as BTC 0.01 without leaving blockchain. You can find more details about Prime Meridian Real Estate token offered by Blackmoonhere.
Risk Warning:
Due to the fact that cryptocurrency markets are unregulated and decentralized, the provision of our services is not governed by any specific regulatory framework or investor protection rules. Investment in cryptocurrencies carries high degree of risk and volatility and is not suitable for every investor; therefore, you should not risk the capital you cannot afford to lose. Please consult an independent professional financial or legal advisor to ensure the product meets your objectives before you decide to invest. Under no circ*mstances shall Blackmoon have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to the asset tokens or (b) any direct, indirect, special, consequential or incidental damages whatsoever. Please consider our Risk Disclosure and our Terms of Use before using our products. Social media posts about Blackmoon platform are generated by members of Blackmoon community and do not contain advice, recommendations or solicitation on behalf of Blackmoon. You are not permitted to use, alter or reproduce or distribute any of Blackmoon images and/or content, including but not limited to text, graphics, video, audio, software code, interface design or logos without our prior written consent. All rights reserved © – Blackmoon Financial Group 2018
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FAQs
It's an investor funding your loan, not a bank. If you're interested in P2P lending, the first step is to research the lenders you want to work with and prequalify. If you're offered competitive terms for your financial situation and apply, you can expect the funds within a few business days.
What is peer-to-peer lending in banking? ›
What is Peer-to-Peer (P2P) Lending? Peer-to-peer lending is a form of direct lending of money to individuals or businesses without an official financial institution participating as an intermediary in the deal. P2P lending is generally done through online platforms that match lenders with the potential borrowers.
What is peer-to-peer lending which allows individuals to borrow and lend money while bypassing financial institutions? ›
Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.
Would you consider taking out a loan on a P2P platform would you consider lending money on a P2P platform? ›
As with any high-return investments, there are risks with P2P lending. Default rates tend to be high with this class of loans, which can lead to losses for investors. Fees charged by the platforms may eat into any potential returns as well.
What credit score do you need for a peer-to-peer loan? ›
You typically need a score of at least 580-600 to get a P2P loan. However, the minimum credit score for a loan varies by lender.
Can you lose money on peer-to-peer lending? ›
If the borrower defaults, lenders often lose their money
While some peer-to-peer loans are secured, they are most often unsecured loans. This means the borrower isn't borrowing against any collateral, and if they can't pay their loan, the lender loses their money.
How much can you borrow from peer-to-peer lending? ›
Through the online borrowing and lending practice of peer-to-peer lending, borrowers generally obtain loans ranging from $1,000 to $25,000 that would otherwise be difficult or costly to obtain from traditional banks, while lenders fund such loans based on the promise of a capital return.
How do I borrow money from peer-to-peer lending? ›
How to apply for a P2P loan. To apply, go to one of the lending sites and register. Select the amount you want to borrow and for how long. If you qualify for a loan after a credit check, you'll be told the interest rate.
What are the problems with peer-to-peer lending? ›
The main peer-to-peer lending risks are: Yourself (psychological risk). Not enough diversification (concentration risk). Losing money due to bad debts (credit risk).
Can I make money from peer-to-peer lending? ›
This means a solid portfolio of P2P loans can generate a steady stream of passive income. Higher Yields – Without question, the single most attractive aspect of P2P lending for investors is the potential for higher yields. A carefully curated portfolio of loans can potentially earn 10% annually or better.
There are three main steps:
- Open an account with a P2P lender and pay some money in by debit card or direct transfer.
- Set the interest rate you'd like to receive or agree one of the rates that's on offer.
- Lend an amount of money for a fixed period of time – for example, three or five years.
P2P lending is both a safe and legal way to get money for a loan or to invest money. As with other types of financing, it's important to work with a reputable lender because borrowing is not without risk.
Is peer-to-peer lending legal in the USA? ›
Because, unlike depositors in banks, peer-to-peer lenders can choose themselves whether to lend their money to safer borrowers with lower interest rates or to riskier borrowers with higher returns, in the US peer-to-peer lending is treated legally as investment and the repayment in case of borrower defaulting is not ...
What is the difference between peer-to-peer lending and banks? ›
Peer-to-peer (P2P) lending platforms and traditional lenders both offer online loans. The primary difference between the two is that P2P platforms connect investors who lend money to borrowers trying to get a loan. Traditional lenders use their money to finance loans directly.
Is peer-to-peer lending regulated? ›
Under our integrated regulatory structure across the whole of Supervision, Policy and Competition in the FCA, Loan-based Peer-to-Peer Lending (P2P) is now supervised by the Consumer Investments Directorate.
How much money do you need for peer-to-peer lending? ›
Best for Automatic Investing: Prosper
Also founded in 2005, Prosper was the first peer-to-peer lending site in the U.S. Since then, it has helped more than 1.7 million customers with over $20 billion invested. Investors can be a part of that funding for as little as $25.
How to get a loan from peer-to-peer? ›
Applying for a peer-to-peer loan is similar to other loans, and you'll typically take these steps:
- Check your credit. Review your credit report and score so you know which lenders you can qualify with. ...
- Shop around. ...
- Get pre-approval. ...
- Submit an application. ...
- Wait for loan funding. ...
- Receive the loan and begin repayment.
So, is peer-to-peer lending safe? Like any investment, it does put your capital at risk. However, given the predictability of the repayments from borrowers and other safeguards in P2P, other forms of investment are often risker.
What is the limit of peer-to-peer loan? ›
RBI guidelines allow any individual, HUF (Hindu Undivided Family), firm, society, or company to participate in a P2P lending platform. As per new guidelines, the RBI raised the investment limit for individuals by five times to Rs 50 lakhs.
