What is "peer-to-peer lending"?

Peer-to-peer lending is characterized by the direct exchange of funds between individuals without the involvement of traditional financial institutions such as banks. This method matches borrowers who need funds with lenders who are willing to invest their money, typically through an online platform that facilitates these transactions. By cutting out intermediaries, peer-to-peer lending often results in more favorable loan terms for both parties involved, such as lower interest rates for borrowers and higher returns for lenders.

This model contrasts significantly with traditional banking methods, which involve financial institutions assessing creditworthiness, managing borrower-lender relationships, and profiting from the spread between deposit and loan rates. Additionally, the focus on individuals rather than corporations aligns with peer-to-peer lending's grassroots nature, further distinguishing it from options that involve only corporate lending or government-sponsored programs. Such government programs typically have more rigid guidelines and serve particular social or economic goals, which is not a characteristic of peer-to-peer lending.