The Great Recession had a big effect on both borrowers and
investors. As a result of this crisis, it became much harder for people and
businesses to get loans. Additionally, due to the historically low interest
rate environment, investors were looking for higher returns. By combining
technology with these realities, Peer to Peer Lending (P2P) was born.
P2P Lending is the practice of lending money to individuals
or businesses through an online service such as LendingClub.com or Prosper.com
that match lenders directly with borrowers. Since these services are entirely
online, they have lower overhead. As a result, they can provide the service
more cheaply than traditional financial institutions. Thus, lenders often earn
higher returns than at a bank, while borrowers borrow money at a lower rate.
Watch the YouTube video below to get an understand of this
subject. The other link offers good information as well.
I am currently an investor on both the websites above. I am
curious what do you think about this form of lending/investing? What might happen
if there is another recession?
As an individual based application, I can see the benefits of using this service over banks or credit cards. I've never been a fan of credit cards and rarely use mine. We can also see society moving along as a cashless society with apps like Venmo or Squarecash, which make money payments and transfers extremely easy.
ReplyDeleteOn the other hand, do we know how secure these new institutions are? A current benefit that banks and credit card companies can provide is an extra level of security for their customers and I'm not sure what LendingClub.com or Prosper.com offer. Also, with any nascent industry, competition is healthy, but what's to stop larger banks and corporations from getting a foot in the door with these websites? It's a good concept, but the video didn't explain to much with regards to how it actually works as well as any fine details.