Practices Encouraged by Emerging Online Platforms

Without going into details of the concept of peer-to-peer lending, one can explain it as a type of debt financing, in which lenders and borrower enjoy freedom and control over the terms of a loan, without any intervention of intermediary financial systems. Further simplifying, it is a term used for the practice of money lending by individuals via services that connect lenders and borrowers directly.

It may come as a surprise to some; the core concept behind peer-to-peer lending is not new. People meeting new lenders and borrowers on various dedicated platforms, or being matched with appropriate lenders or borrowers online is what makes it feel something different. But if we say that a person lending money to a borrower on a moderate interest rate, with flexibility in periods of paying installments, is something out the world, I wouldn’t agree. I have seen people taking money from those who consider them trustworthy (it is many times not based on credit score calculated using some complex algorithm) to meet their short-term, or sometimes even long-term financial needs, and paying back on terms mutually agreed upon.

Looking at the options available in the marketplace and the ever-growing community of lenders and borrowers we can say that it is destined to reach new heights. Even after seeing many platforms available online, I would not say that the service domain is achieving saturation. These platforms, providing facilities for peer-to-peer lending vary ever so slightly in their way of delivering services to the end user. Knowing so, one can justify the suitability of one platform for his or her needs and reject another for the very same or some other reason; only if one knows where to look for these minute variations.

Not making it too analytic, I will pick a few important points, which may act as a key factor in deciding upon the platform of your choice, but before proceeding, I suggest a broad classification based on the extent of involvement. One type covers all those platforms, which either impose some type of restriction on the loan amount, interest rate or any other terms, matching up lender or borrower payments, and their methods. The other type includes those platforms that exist primarily to facilitate direct debt financing and its record keeping, in other words, making the process systematic and easy, and does not restrict users in any way in the domain of these financial interactions.

• Networking

Some platforms match lenders and borrowers themselves or have an influence on such matchups. This reduces the scope one enjoys over selecting their lenders or borrowers. These platforms should not be considered social.

• Commission

The platform having the business model that defines earning based on money flowing through their domain usually restrict payments to be made through their transaction facilities.

• Flexibility in options available for lending or borrowing

Almost all platforms will give the option to create a loan, but few will support various complex loan terms like amortization versus balloon or custom compounding frequency, that too being independent of repayment frequency although within feasible combinations. Some platforms even restrict interest rate within specified ranges. Creating a pool for funding a large amount is another good feature to look for, but only if you get to choose whom you are sharing profits with.

I can continue writing on these and many more factors, but not much will come out of it, rather, I recommend the readers who are interested should try these platforms before sticking with the first that came in sight. Selecting old and matured platforms only has one apparent advantage, a big user base to get started right away after registration. But if you are more comfortable with lending or borrowing within your social network / trust network, which invariantly includes people from family, friends or colleagues, there is no harm in trying one of those newly launched platforms as you are not looking for unknown people to connect to anyway.