To Peer Lending

Peer to Peer Lending how does it work on practice

P2P lending (from peer-to-peer or person-to-person, sometimes also called “social lending”) is a lending scheme, comes as an alternative to traditional one, involving banks or financial institutions. The lending issue is carried out directly between individuals who are not related to each other by any relationship. They can act as both lenders and borrowers, and interaction between the parties is carried out through specialized sites.

Most P2P loans are unsecured and are characterized by an increased level of risk for lenders. In such a scheme, as a rule, there is no thorough examination of potential borrowers for their conscientiousness and solvency. For this reason, the amount of interest rates for the use of borrowed funds is quite high. It can be either set at a fixed level or determined at a reverse auction, where lenders compete for the execution of the borrower’s application.

The organizers of P2P lending are companies that receive income in the form of commission from transactions, which can be from one or both parties (borrower and lender), or fixed annual payments.

As p2p lending becomes more popular, there appear different forms, like peer to peer home loans or money, borrowed for a particular purpose, like buying real estate, cars or anything of the kind.

To issue or receive loan funds, an individual must register on the site, pass verification and gain access to participation in transactions as borrower or lender. Issuances of money and debt repayment are carried out by transfer from card to card.

How to find a platform for p2p-lending?

As the choice of platforms for peer to peer loans in South Africa is becoming really wide, we single out main points that are to be considered while making a choice.

Platform size

A good starting point for assessing the reliability of a crowd-lending platform is to examine the scale and duration of a company’s operations. Most likely, the sites with the largest number of investors and financed loans have already been successfully tested by other investors. Some of the younger platforms may attract you with high interest rates, but the lack of an impressive track record also indicates a higher risk of a company scrapping or operating illegally.


To make sure that a crowdfunding site is what it claims to be, search the Internet for evidence of its existence. Any platform that conducts full-fledged business activities has a staff of employees who perform different functions – from marketing to solving legal issues, so the availability of publicly available data about the company’s management and employees on its website or on social networks such as LinkedIn indicates that the company has nothing to hide. Another factor that speaks in favor of the platform is the provision of information about the loan itself, which the investor can take into account before investing their money. This can be statistical data about a credit institution, the profile of a borrower – a legal entity or an individual, the reason for taking a loan, etc. It is important to collect information about the lending companies that place loans on the platform. If the platform itself provides loans to borrowers directly, feel free to ask how they do it.

Previous results and performance

It is not how much time you devote to something that matters, but how effectively you spend that time. From an investment point of view, this means that even if a crowd-lending platform claims to have been on the market longer than its competitors, you should pay attention to how well its users have achieved. For example, how many clients have earned a return on their investment and how much? Study the reviews of investors on the Internet – if they have not achieved high results, this may be a sign that the financial partners of the site are not being thoroughly checked.

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