Peer-To-Peer Lending (P2P)

AAA

DEFINITION of 'Peer-To-Peer Lending (P2P)'

A method of debt financing that enables individuals to borrow and lend money - without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios.

Also known as "social lending".

INVESTOPEDIA EXPLAINS 'Peer-To-Peer Lending (P2P)'

The advantage to the lenders is that the loans generate income in the form of interest, which can often exceed the amount interest that can be earned by traditional means (such as from saving accounts and CDs). Plus P2P loans give borrowers access to financing that they may not have otherwise gotten approval for by standard financial intermediaries.

The method is not without its disadvantages as the lender has very little assurance that the borrower, who traditional financial intermediaries may have rejected due to a high likelihood of defaults, will repay their loan. Furthermore, depending on the lending system employed, in order to compensate lenders for the risk that they are taking, the amount of interest charged for peer to peer loans may be higher than traditional prime loans.

RELATED TERMS
  1. Loan Production Office - LPO

    The area of a bank's operations that accepts applications for ...
  2. P To P (Peer To Peer) or (Path ...

    P to P can mean one of two things: 1. Peer to peer allows internet ...
  3. Brick And Mortar

    A traditional "street-side" business that deals with its customers ...
  4. Click And Mortar

    A type of business model that includes both online and offline ...
  5. Lending Facility

    A mechanism that central banks use when lending funds to primary ...
  6. Franchise disclosure document

    A Franchise Disclosure Document (FDD) is a legal document presented ...
Related Articles
  1. Choosing The Winners In The Click-And-Mortar ...
    Investing

    Choosing The Winners In The Click-And-Mortar ...

  2. When Financial Crisis Strikes The Bank ...
    Budgeting

    When Financial Crisis Strikes The Bank ...

  3. Using Economic Capital To Determine ...
    Personal Finance

    Using Economic Capital To Determine ...

  4. Can't Get A Bank Loan? Turn To Your ...
    Credit & Loans

    Can't Get A Bank Loan? Turn To Your ...

comments powered by Disqus
Hot Definitions
  1. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
  6. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
Trading Center