Peer To Peer Loans And Student Loans

Peer To Peer Loans And Student Loans



Peer-To-Peer Loans And Student Loans
Small time entrepreneurs and individuals found a​ cheaper option to​ finance and start their businesses online .​
With banks offering high interest in​ loans,​ credit investigations and onerous amortization obligations,​ online communities raised money and lend it​ to​ complete strangers .​
This is​ called Peer to​ Peer lending or​ P2P.
Peer to​ Peer lending is​ a​ type of​ social lending wherein the​ lender would bid money to​ finance a​ loan application from a​ struggling entrepreneur from a​ different country or​ any prospective person with reasonable need to​ acquire loans .​
These loans are needed to​ start up a​ business,​ finance a​ significant project or​ help a​ third world person to​ start at​ business and become productive .​
Voluntary investors pool the​ funds,​ send it​ to​ the​ online marketplace like Prosper.com,​ MicroPlace,​ Zopa or​ Kiva and delegate the​ collection process to​ a​ collecting agency and charge them with rates lower than what banks offer minus the​ administrative process.
Loans are divided among lenders and payments are sent directly to​ the​ P2P sites which then distribute the​ money to​ lenders and report non payments to​ credit agencies or​ collection firms .​
Formal arrangement seems to​ make people more conscious about repayment terms without any bank involved in​ the​ process.
It started when consumer’s started to​ doubt financial institutions capabilities of​ helping them alleviating from loan payments with high interest rates and therefore,​ their ethics was being questioned .​
The maverick online companies’ attitude toward this predicament is​ if​ they can get this done cheaper between ourselves,​ what do we need a​ bank for?
There are two variations of​ Peer to​ Peer Lending on​ the​ Internet,​ the​ first one is​ Online Marketplace model and Family and Friend Model .​
The marketplace model of​ peer-to-peer lending connects borrowers with lenders through an​ auction process in​ which the​ lender who offering the​ lowest interest rates wins the​ borrower’s .​
Some loans are packaged and resell the​ loans but ultimately,​ they are sold to​ different individuals.
The family and friend model lets go the​ auction process and concentrates on​ lenders and borrowers who already have prior knowledge of​ each other and formalize an​ online collaboration and debt servicing .​
The advantage of​ the​ market model benefits the​ borrower with its match-making aspect to​ the​ lender that offers the​ lowest interest rate for loans .​
These loans are unsecured and therefore,​ risky.
Lenders charge enough to​ cover defaults in​ payment and still profit from the​ investments .​
There is​ also a​ strategy of​ repayment which is​ shame .​
People who borrow repay real world co-ops because they fear losing face among peers .​
Their objective,​ therefore,​ is​ to​ make their small business profitable and regularly repay the​ loans to​ conduit collection agencies.
The peer to​ peer lending process uses social computing phenomena such as​ internet blogs,​ podcasts and participation from online volunteers to​ match borrowers with prospective lenders .​
Loans become cheaper as​ a​ result while lenders can earn more from other investments .​
Many investors believed that they get higher returns from 11-13% returns without much management while borrowers get lower rates and less hassle.




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