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. Peer-To-Peer (Virtual Currency)

    The exchange or sharing of information, data, or assets between ...
  2. Loan Production Office - LPO

    The area of a bank's operations that accepts applications for ...
  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. Freelancer

    A freelancer is an individual who earns money on a per-job or ...
RELATED FAQS
  1. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  2. How does the notion of the American Dream influence the US economy?

    The notion of the American Dream influences the U.S. economy because it creates the driving force behind the free enterprise ... Read Full Answer >>
  3. How do venture capitalist investors view sustainable growth in a startup?

    Venture capitalist investors view sustainable growth in a startup as necessary when considering investing in it. Typically, ... Read Full Answer >>
  4. How can I protect my business from my spouse during a high net worth divorce?

    For high net worth individuals (HNWIs), deciding to end a marriage through divorce brings special circumstances to consider. ... Read Full Answer >>
  5. What risks does a business owner face under a business structure with unlimited liability?

    The risks that a business owner faces under a business structure with unlimited liability are literally unlimited, but they ... Read Full Answer >>
  6. How do I set up a Limited Liability Company (LLC)?

    The specific process and procedures for organizing a limited liability company (LLC) vary from state to state. However, the ... Read Full Answer >>
Related Articles
  1. Investing

    Choosing The Winners In The Click-And-Mortar Game

    E-tailing has changed the way consumers do nearly everything. Do you know how to pick the best retailer?
  2. Budgeting

    When Financial Crisis Strikes The Bank Of Mom And Dad

    If you really want your kids to learn to be financially responsible adults, it's time to stop giving them money.
  3. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  4. Credit & Loans

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

    Peer-to-peer lending can be an inexpensive way to gain access to credit when banks are restricting lending -- but you need to understand the entire deal first before jumping in.
  5. Entrepreneurship

    7 Unconventional Ways Businesses Can Borrow Money

    Find out how your business can get the money it needs - even when the bank says "no".
  6. Retirement

    10 Bank-Breaking Money Myths

    Just because a belief is common, doesn't mean that it's true. Here we separate fact from fiction.
  7. Retirement

    The Best Way To Borrow

    There are many avenues from which to drum up funding. Find out the pros and cons of each.
  8. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  9. Options & Futures

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  10. Options & Futures

    Peer-To-Peer Lending Breaks Down Financial Borders

    Banks are no longer the only option for a loan - the P2P lending system operates without them.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!