Peer-to-Peer Lending

Full definition

Peer-to-peer (P2P) lending platforms emerged around 2005-2007 with the promise of directly connecting borrowers who needed funds with investors seeking better returns than savings accounts. How it works in practice today: Borrowers apply online and receive a credit decision within minutes to hours. If approved, their loan request is listed for investors to fund (in whole or fractional shares). Most platforms fund loans within a few business days. The platform services the loan (collects payments, handles delinquency) and takes a fee from both borrowers (origination fee) and investors (service fee). Evolution of P2P platforms: Originally, P2P lending was truly individual-to-individual. Today, institutional investors (hedge funds, banks, insurance companies) fund the majority of loans on most platforms. The 'peer-to-peer' label is somewhat historical - these are now better described as 'marketplace lenders.' Leading U.S. platforms: LendingClub (went public and acquired a bank; now FDIC-insured). Prosper (still operates as a marketplace). Upstart (uses AI/ML underwriting, sells loans to banks). Avant (focuses on near-prime borrowers). LendingClub now operates more like a bank than a traditional P2P platform. Borrower considerations: Rates and fees on P2P platforms are often similar to traditional online lenders. Origination fees of 1%-6% are common. Approval decisions may be faster for some credit profiles that traditional banks would decline. The key advantage is access, not necessarily price. For investors: P2P platform investments in consumer loans are not FDIC insured and carry real default risk. Not suitable for money that cannot be lost. Most P2P investment opportunities are now only available to accredited investors.

• Marketplace lender
• Origination fee
• Personal loan
• Secured loan