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P2P lending

One of the most important reasons why P2P lending has become so popular is due to the time in which one can get the funding, apart from its simple procedures involved.

P2P allows an individual to get the funding in a matter of hours or days; this is unlike the traditional banking system where it may take a lot longer to get funding.

What is P2P lending?

P2P lending is the system where the borrowers and investors are connected directly without an intermediary such as the bank. Hence, the entire system involves just two parties which connect via a P2P portal.

In P2P lending, borrowers request for the loan and get the funding within a short span whereas the investors create their profile and get to handpick the borrowers they want to fund. This simple process circumvents a lot of formal procedures which would otherwise consume a lot of time for the loan sanctioning and funding.

The reason behind P2P lending’s quick financing

The most significant reason behind the fast funding of p2p loans is due to the circumvention of an intermediary. An intermediary like the bank collects several documents to reduce the risks involved with the borrowers not returning the loan amount, apart from verifying their credentials.

Therefore, bypassing the intermediary also dodges the need for several documentation and its verification. Borrowers are not required to run up and down in the name of document verification, and they can check all the documents online in one shot and apply from anywhere.

This is the main reason how P2P lending is capable of arranging quick funds for its borrowers. So, if several documents are not collected to gain an insight into the borrower’s credentials, how does the portal verify its users?

Calculating the borrower’s credentials

The P2P lending portal calculates every borrower’s credentials based on many factors such as past repayment record, credit bureau reports and income levels. But the primary factor affecting the borrower’s credentials is their credit score rating. A borrower with a poor credit score or repayment history indicates that he/she is a high-risk borrower.

Every P2P lending portal has a credit algorithm which takes all these factors into consideration and rates them accordingly. An excellent rating means that the borrower is a safe person to invest in and has higher chances of getting personal loan than the other borrowers. Investors check every borrower’s score and then decide whom they prefer investing in. This is how the borrower’s credentials are calculated without the need of various documents.

The borrowers have to upload the minimum required documents on the P2P lending portal which are then checked and verified quickly. The investors go through all the borrowers and their ratings which help them decide whom and how many to fund.

After the selection procedure, the investor and the borrower connect directly to carry on the proceedings after that. This quick and simple process makes it possible for the borrowers to get the funding in less than a few days.

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