The modern digital age, the rise of the mobile phone and the proliferation of mobile banking apps has transformed the way many people go about managing their money.
Reducing time wasting trips to the bank is revolutionary and seen as a great advantage for many people.
At the same time, many others have been rethinking the way they can go about lending and borrowing money. As more and more go online, the market has changed.
Essentially releasing that one is not tied to a high street bank in order to go about one’s financial business is really a game changer.
You see the internet has opened up a whole new world of possibilities, not least the possibility that lending and borrowing doesn’t have to be a transaction between you and a large financial institution.
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What Does Peer To Peer Mean
Peer to peer is a term borrowed from computing. In this application it means a computing task or network that is distributed across several computers or sites.
There is no central server, and each computer operates as a node in this network.
So in a peer to peer network, each node acts like a client and a server in that it can receive and pass on information.
How Does This Translate To Lending?
Interesting that you should ask.
Normal borrowing models usually involve a large financial institution such as a bank. The bank holds large reserves of money and it lends this money to individuals and businesses that want to borrow money.
To take the computer analogy, the bank is like the main server, The people borrowing money are like clients on the network.
But in peer to peer lending, there is no bank. No large reserve of money.
Each individual can lend and borrow money on the network.
Often the amounts are smaller, but money flows around the network instead of to and from the bank.
The Apps That Make It Happen
There are many apps that you can use that will put you in contact with peer to peer lending communities.
These apps will put people who are prepared to risk their money on the network for the chance of profit in the form of interest in touch with those who want to borrow this money.
Terms are set and agreed upon depending on which network you join.
You should do your due diligence and make sure that you know what you are getting yourself into.
Risks
There are risks involved in lending money. Primarily, you risk the loan not being paid back on time. If your borrower defaults then you could be left without you money.
Also, early or late payments could alter your bottom line, especially as a lender.
Care must be taken before entering into any peer to peer contract online.
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