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Peer to Peer Lending Networks - How Do They Work?

February 18, 2012 | Comments: 0 | Views: 145

The ability for most people to borrow money in this economy has become difficult if you have less than great credit or if you have a lot of debt even with good credit. If you are a small business owner, you are very aware that banks have tightened their requirements and have just about pushed the small guy out of business. And if you are just a regular person trying to get by in this world, you know that interest rates for you are high. We see all over the news how interest rates are low, but that must be just for the rich people. If you have gotten a credit card application in the mail lately, no doubt you have seen how high the interest rates are on those things.

There is a new player in the game, so to speak, when it comes to borrowing and lending, and that is peer to peer lending networks. You will find them called a variety of things like person to person lending, social lending or even abbreviated as P2P lending networks.

This is basically a legal, financial mechanism for individuals to safely lend each other money at competitive interest rates. The risk of letting an individual borrow money is very evident. Families and friendships can be torn apart by the risky business of letting loved ones borrow money.

The most important point about peer to peer lending is the fact that you can borrow money, at a decent interest rate from someone you have never met and have never had prior contact with. But immediately you think this is risky business, right? Very briefly here is how they work.

First of all potential borrowers and lenders join one or several different social lending websites that are out there these days. Basic personal and financial information must be given to the company for legal and credit reasons, but the opposing parties will never know each other or be aware that each other exists.

For borrowers, the process is pretty simple. You put a request on the network for a loan. You will provide an amount and a reason for the need of the money. It can be for personal purchases, debt consolidation or a variety of financial needs. And if you are a business owner, it could be a business proposition where you are basically asking for partners.

For lenders in peer to peer lending networks, the process is a little different. When you join the network as a lender, you provide financial information and you transfer the money to the network in the amount that you are willing to lend. They basically hold it in escrow for a potential borrower. Then you use interest rates to bid on the different individuals borrowing money, competing with other lenders. But you don't necessarily lend all of your money to one borrower. In fact it is smart to spread your money out over different loans to minimize your risk.

In the end, both parties win. If you have a few hundred dollars sitting around and you are tired of getting zero interest from a bank, peer to peer networks give you an option to make a few extra bucks. If you are a borrower, you might just get a better interest rate from one of these networks than from a bank.

Peer to peer lending may not be the best choice for you and your situation. There are several different types of short term loans available that may be a better fit for your unique financial predicament. Go to and see for yourself the different options that may meet your needs and get you that badly needed extra cash.

Source: EzineArticles
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Social Lending


Peer To Peer Lending Networks


Person To Person Lending


P2p Lending


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