what is peer to peer p2p lending 
peer to peer p2p lending enables individuals to obtain loans directly from other individuals cutting out the financial institution as the middleman websites that facilitate p2p lending have greatly increased their adoption as an alternative method of financing p2p lending is also known as social lending or crowd lending it has only been around since 2005 but the crowd of competitors already includes prosper lending club upstart and funding circle 1understanding peer to peer lendingp2p lending websites connect borrowers directly to lenders each website sets the rates and the terms and enables the transaction most sites have a wide range of interest rates based on the creditworthiness of the applicant first an investor opens an account with the site and deposits a sum of money to be dispersed in loans the loan applicant posts a financial profile that is assigned a risk category that determines the interest rate the applicant will pay the loan applicant can review offers and accept one some applicants break up their requests into chunks and accept multiple offers the money transfer and the monthly payments are handled through the platform the process can be entirely automated or lenders and borrowers can choose to haggle some sites specialize in particular types of borrowers funding circle for example focuses on small businesses 2 and lending club has a patient solutions category that links doctors who offer financing programs with prospective patients 3history of peer to peer p2p lendingearly on the p2p lending system was seen as offering credit access to people who would be spurned by conventional institutions or a way to consolidate student loan debt at a more favorable interest rate in recent years however p2p lending sites have expanded their reach most now target consumers who want to pay off credit card debt at a lower interest rate home improvement loans and auto financing are also available at p2p lending sites the rates for applicants with good credit are often lower than comparable bank rates while rates for applicants with sketchy credit records may go much higher lendingtree com for example listed personal loan rates from 6 40 to 36 as of dec 4 2023 4 the average credit card interest rate was 21 19 as of dec 7 2023 according to the federal reserve 5for lenders p2p lending is a way to generate interest income on their cash at a rate that exceeds those offered by conventional savings accounts or certificates of deposit cds some p2p sites allow lenders to start with an account balance of as little as 25 special considerationspeople who wish to lend money through a p2p lending site need to consider the possibility that their borrowers will default on their loans just as conventional banks do research on p2p lending platforms has indicated that defaults are much more common than those facing traditional financial institutions sometimes in excess of 10 6by comparison the federal reserve s index of delinquency rates on all loans at all commercial banks shows that rates have fallen from about 3 76 to 1 32 over the ten years prior to dec 2023 7any consumer or investor considering a p2p lending site should also check the transaction fees every site makes money differently but fees and commissions may be charged to the lender the borrower or both like banks the sites may charge loan origination fees late fees and bounced payment fees 