The peer-to-peer technique is about to disrupt the traditional monetary system in many ways. The Bitcoin network is built on a peer-to-peer technique, and many lending platforms have also integrated the peer-to-peer system. Many investors look at the stock market to get a return on investment. However, peer-to-peer lending offers investors to get a high return on investment independent of the stock market.
What is a peer-to-peer loan?
An easy way to explain a peer-to-peer loan is that you borrow money from a friend. Instead of going to a middle part that could be a bank. But there might be some problems to do this:
- Your friend maybe doesn´t have the money
- Your friend wants some security on the lend money
- Your friend also might want some kind of return on the investment
- Your friend thinks it´s a high risk to lend money the money to a single person
- Your friend wants to know why you need to borrow money
- Your friend wants to know when a repayment can be expected
The peer to peer lending platforms solves all these problems. The solutions are explained one by one here.
The bitcoin peer-to-peer lending platforms the main purpose is to fill all the loans. At the same time, the perfect match would be to have all investors money lent as well. That would create satisfied customers on both sides. Some peer to peer companies tries ti increase liquidity by establishing a second market for loans. That means if you want to get your invested money back before the repayments you can sell your share to another lender. Of course, you will not get the rest of the interest, but the new lender will receive this interest.
2.Credit score and risk profile
Different methods verify all loan profiles.Those could be, passport, driving license, income statement, utility bill, residential bill, phone bill, social accounts, historical loans and more. When the information is collected, the platform has an algorithm that decides a credit score for the account owner. The credit score is a risk profile and will directly reflect the loan terms.
3.Return on investment
The return on investment will depend on the credit score of each borrower. Typically a loan gives between 5-25% interest.
The peer-to-peer lending platforms usually have an auto-invest function. This algorithm will automatically diversify the investments with small investments in many different loans with different risk profile. It´s also possible for the lender to select some parameters for this algorithm. You can also select loans manually.
Loan purpose might be more important when you select loan manually. If you choose the auto-invest function, you can´t influence this.
For every loan, there is always a refund plan. The program shows when you can expect repayments of the loan. That allows you to follow late payments as well as due loans.
Bitcoin peer to peer lending platforms