Peer-to-peer (P2P) finance, also known as crowdlending or social lending, is when you obtain a loan directly from another individual. Financial institutions, 'middlemen', are cut out.
Some sites are specialised to certain borrowers. For example, StreetShares is uniquely designed for small businesses.
P2P lending websites connect borrowers with investors. Through their sites, the rate and terms are set to enable the transaction. Interest rates are included and tend to based on the creditworthiness of the applicant- the more risk and poorer the credit score, the higher the rate (generally).
The process can be automatic or negotiable.
An investor simply opens a site account and deposits a sum of money they are comfortable with, to be distributed as loans. It should be known that P2P lenders are individual investors, looking for a better return on their cash savings than alternative sources.
Loan applicants create a financial profile, to present their risk category and the amount they are looking to borrow.
Offers are sent, reviewed and analysed by the loan applicant, before one is accepted.
The platform manages the money transfer and payments, subject to an earlier determined interest.