Regardless of the social status, everyone takes part in money lending. Money lending is more than just a common practice, as there is a whole industry made from borrowing and lending money. Over the years, the industry has gone through some changes, this is because of P2P loans. P2P loans quickly gained customer trust and it had reasons to do so.
In this article, we will uncover why people choose peer-to-peer lending and what features are important for secure loan management software.
Why do SMEs and Individuals Choose P2P Loans?
P2P lending is the process of transferring money from a private investor to a borrower through an online service. This service is a P2P platform, an intermediary that sets the rules for participants. The highlight of transactions on the platform is the ease of filling out a loan application and saving time for participants. Borrowers do not need to go to the office and wait for every bank employee to give approval. Let’s look at other reasons why SMEs and individuals choose this type of lending.
Banks are Narrowing Their Funding for SMEs.
Regulatory restrictions make the business of lending to small businesses unprofitable (which, in the context of negative rates in Europe and near-zero rates in the US, does not fully meet the interests of credit institutions). Under these conditions, P2P platforms and other forms of alternative finance become excellent solutions for borrowers.
The Flexibility of Financing Models.
Traditional forms of bank financing can be described as inflexible: especially in the situation of exhausting the borrowing limit and overdraft when a large order is received. When using an alternative P2P solution, borrowers have flexibility in choosing the type of financing and methods of loan repayment.
Individual Approach to Clients.
Most financial institutions lend under a model that does not work for many businesses. On the contrary, alternative financing solutions are completely individual, funds can be used to implement any ideas.
P2P financing offers a more personalized way for a borrowing transaction than the more traditional business financing. All Lending is done in accordance with the profile of the business, including the sector in which the business operates, the company’s turnover, and the most important, objectives of the business.
Alternative financing, can improve the profitability of a business by eliminating financial intermediaries. This reason is usually the key one when choosing between classic lending and P2P lending.
Why You Should Launch a P2P-lending Platform
To understand whether it makes sense to launch a P2P-lending platform, you need to know what benefits this solution brings for the participants.
Benefits for Investors:
- This type of lending is attractive to investors because of the high yield promised. Peer-to-peer lending platforms provide greater returns than traditional solutions such as savings accounts and other investment methods.
- Convenient portfolio diversification. Modern P2P-lending platforms allow investors to distribute their funds between different investments. This reduces the risk of losing money.
Advantages for Borrowers:
- Interest rates and fixed payments. Competitive interest rates are almost the main advantage of using P2P lending platforms for borrowers. If the borrower’s project meets the requirements of the investor, they are likely to get less interest rates than they would from a bank.
- Availability. Getting a peer-to-peer loan is easier and faster compared to a bank. Such platforms evaluate the borrower according to different criteria than banks. Therefore, borrowers who cannot get a loan from a bank usually successfully apply for financial support on a P2P-lending platform.
- Simplicity and speed. Since the work of platforms for loans is arranged differently than in banks, borrowers choose innovative solutions that allow them to receive money without even leaving their homes.
- Opportunity to choose the best offer. Banks restrict the borrower in choosing the form of lending, conditions, dates, etc. Alternative P2P lending platforms give borrowers the freedom to choose the best loan offer.
Technologies Used to Build a P2P-lending Platform
A peer-to-peer lending platform can be created from scratch or from a white-label solution. Before you make a choice, let’s look at technologies that can create and develop a P2P lending platform.
Most Peer-to-peer lending services use blockchain technology. This solution increases the speed of consideration of applications, eliminates the need for an intermediary in data processing, and guarantees users transparency.
Smart contracts are used on P2P lending services so that the borrower of each category can quickly and accurately receive offers from the system regarding the loan amount available to him, the interest rate, and the loan period.
Machine learning is focused on simplifying the lending process through the use of custom technology patterns.
AI is typically used to increase the availability of credit for those borrowers whose creditworthiness is assessed using non-traditional metrics.
How to Create a Platform for P2P Lending?
The development of a platform for P2P lending involves going through all the development stages that are typical for a fintech product. The main steps are:
1. Research your target audience.
2. Create an MVP.
3. Create UI/UX design for your platform.
4. Start development.
5. Maintenance of the finished product.
Consumer interest in P2P lending is clear. You can save yourself from creating a solution from scratch and purchase one from LenderKit. The company offers loan management software for consumer-focused or corporate lending businesses. The company’s software uses technical innovations and best practices that will allow you to stand out from your competitors and attract users.