Why people use peer to peer lending and P2P loans

Peer to peer lending, also called P2P, lending has been increasing in popularity for several reasons. Let's look at several of the reasons why.

• Lending from peers can be based on reputation but is always independent of credit score. For those just starting out their financial lives, borrowing from peers may be the only form of borrowing available to them.
• Peer lending generally offers much lower interest rates than credit card debt. This is why many turn to P2P lenders instead of using credit cards.
• Peer to peer loans can be used to replace or in place of personal loans. Banks rarely loan money to someone to pay off their parents or friends. Peer lending networks, however, can provide funds to pay off personal loans.
• Personal loans can also be run through peer lending services. This removes the awkwardness of a relative or friend demanding periodic payments. P2P also gives the lender a means of enforcing collections through the peer lending website if not paid.
• Peer lending services also allow someone to receive a majority of the funds from a relative or friend while using the peer lending service to provide the remainder of the funds for a project. One person can front $5,000 through the peer lending service while others bid to lend the remaining thousands of dollars for the project.
• Peer lending services simplifies the loan management for the borrower, since they only have to make one payment to the peer lending service to pay all of those who loaned them money.
• The benefits of peer lending are not limited to borrowers. Because peer lending offers higher rates of return than high yielding savings accounts, peer lending is an avenue of making money. Since peer lenders can front very small amounts of money to many borrowers, lenders can diversify their portfolio and lower their risk compared to loaning one friend a large sum of money.