Peer-to-peer lending involves lending money directly to people or businesses without the involvement of a formal financial institution acting as a middleman. But how does peer to peer lending work? Loan requests are submitted by borrowers, and lenders select which requests to finance. I have shared the details with you below.
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How Peer to Peer Lending Works?
It is a form of direct lending that connects individual borrowers with individual lenders via an online platform, bypassing traditional financial institutions like banks. It offers an alternative way to access funds or earn interest on spare capital. Here is peer to peer lending how does it work.
Both lenders and borrowers register on a RBI-registered P2P platform.
Borrowers submit personal, financial, and employment details. The platform assesses the creditworthiness using internal algorithms and credit scores. Approved borrowers are listed with their required loan amount, interest rate, and purpose.
Registered lenders review these listings and choose whom to lend to, either partially or fully funding the loan.
Once the loan is fully funded, legal agreements are signed digitally. The platform disburses the amount to the borrower, who then repays in EMIs over the agreed period.
Lenders receive repayments with interest, typically higher than bank fixed deposits or savings accounts.
For borrowers, P2P offers faster, easier loans. For lenders, it provides higher returns but with higher risks, such as default and no guarantee of recovery.
I hope you found this helpful.
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How does Peer to Peer Lending Work?
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2025-05-17T16:08:30+00:00 2025-05-17T16:08:32+00:00Comment
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