What is Peer-to-Peer Lending?
Peer-to-peer lending (also known as peer-to-peer investing or social lending, and abbreviated as P2P lending) is a financial transaction related primarily to lending and borrowing, though it can include other more complicated transactions. P2P lending occurs directly between individuals or "peers" without the involvement of a traditional bank or financial institution. Unlike person-to-person charities or microlending, P2P lending is a for-profit venture and does not specifically have a philanthropic purpose.
P2P lending grew in frequency due to the ease of connecting borrowers with lenders via the Internet, and sites such as Prosper.com and LendingClub.com have become popular.
With P2P lending, borrowers can usually find a better interest rate than a traditional bank can offer, and lenders may see a higher rate of return. These mutual benefits are the result of the lack of high overheads that traditional financial institutions have. In addition, person-to-person lending can be faster because individuals don't have to deal with the same corporate red tape and procedures that financial institutions do.