Peer-to-Peer Lending (P2P)


You cannot manage a household or do much of anything in this world without the input of money. There are so many people who lack the financial means to live and enjoy a high-quality life.  Money is what stands in the way of them acquiring their needs or wants. When there is a problem, various solutions will be thrown up. Welcome to the world of Peer-to-Peer Lending (P2P).


Peer-to-peer lending is legal and recognized by the government. The use of official financial institutions as avenues to source for funds can be tricky, intricate, and cumbersome to some people who do not meet the required credit standards. Poor credit is the barrier between the borrower and the needed loan.  Credit Cards are an option for people who have poor credit, but they come with restrictive credit limits and high interest rates.   Most people are not comfortable with borrowing from sources other than insured financial institutions, yet they need access to financial capital. This scenario created the rise to the advent of Peer-to-Peer Lending (P2P).

Clearly defined, therefore, this means of getting money is a method of debt financing whereby individuals can either borrow or lend money depending on the situation without recourse to any financial institution acting as an intermediary. The middleman is technically removed from the lending process. In some circles, it is known as social lending.


The borrowers and lenders are individuals. This mode of transaction is conducted online. The fact again must be laid bare here that most of the people that conduct their business through this method are those that have been rejected by established financial institutions. The reason for this is due to the fact of their inability to repay those loans.  Most financial institutions will not lend money out in such risky scenarios.

Despite all the odds, however, Peer-to-Peer Lending (P2P) has come to stay as a means of getting needed cash to people who are desperate. There are instances of people who have taken advantage of this medium of borrowing.  The emergence of new intermediaries in this mode of borrowing money is also time-saving compared to traditional lending sources.


  • The transactions take place online.
  • There is room for intermediation by a peer-peer-lending company.
  • If the P2P offers total facility, the lender will more often make a choice between borrowers; they will choose the ones they will lend money.
  • Some (though not all) of the P2P platforms provide transfer facilities or what is referred to as free pricing choices. It applies to debt collection as well as to profits.
  • In this system of monetary transaction, there is no need for a prior knowledge/common bond between the lender and the borrower.
  • In most instances, it is conducted for profit.
  • The loans under this category can be secured or unsecured.


The initial concept is to do away with being forced to borrow from approved financial institutions:

  • A means of getting new lenders and borrowers.
  • The development of credit models meant for loan approvals and for pricing.
  • There is the need for some verification before each deal is sealed. Issues such as borrower identity; employment; bank account and income can be verified through the intermediaries.
  • It will enable the performance of a borrower credit check with the sole aim of separating and filtering out dubious and unqualified borrowers.
  • There is the need to process the financial transactions, borrowers will pay and same will be returned to those that lent out the money in the first instance. The processes need effective co-ordination which can be guaranteed by the intermediaries.
  • There is the aspect of tiding up the legal aspects and the reporting of such which are performed by the intermediaries.


In most countries of the world, the art of soliciting investments from the public is considered illegal. To get the legal cover; the language adopted is Crowdfunding. This is an arrangement whereby people are made to contribute money in exchange for potential profits based on mutual efforts of those in the group; it is known as securities.


  • It is two-way traffic; a sort of win/win situation for both the borrower and the lender. The borrowers will get access to funding otherwise not available from a traditional bank. On the part of the lender; they are guaranteed higher returns more than they would obtain elsewhere.
  • It assists people and is beneficial to the community.
  • It supports the efforts of individuals to break free from the burden of debt.
  • It discourages those that are involved in activities deemed immoral-the ones that are detrimental to the society.


  • Interest rates may be higher in other to cushion the effects of likely loss occasioned by defaulters.
  • Measures to enforce repayment of the loans through the government are not in place.
  • The default on repayment of the loans is very high.


If you are interested in learning more about peer to Peer lending (P2P) or participating in this practice, please see the below list of top rated (P2P) platforms:


There is the risk factor in any business or investment endeavor. But considering all factors, Peer-to-Peer lending (P2P) has come to stay and it is now a strong factor in the economies of most countries-the developed and underdeveloped alike.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

5 thoughts on “Peer-to-Peer Lending (P2P)

  1. Mrs. Groovy

    We wanted to try P2P with the Lending Club. Then, we found out it’s not permitted in North Carolina. We would only have been willing to lend a very small percentage of our portfolio anyway but I don’t get why it’s not allowed.

    Nice overview!

  2. Mustard Seed Money

    I thought about doing peer to peer lending but I have been scared off that the market was gonna turn. Clearly I am lousy at market timing since that hasn’t been the case. It’s a good thing I have a passive index portfolio 🙂 Anyway thanks for the overview and it’s definitely something I need to look into again.

  3. Rich @

    Hey Journeyman — Nice writeup. I’ve been investing in P2P loans Prosper for around 8 years now. There have been ups and downs, but I still like it for the following reasons: 1- Diversification into a unique asset class. 2- Slow and steady compounding. 3- Easy auto-invest options keeps money working. In the 8 years, I’ve earned around $30K in profit.

    At first, returns were quite high, but I think the industry has become more efficiently priced. Now returns are more like bonds or CDs — around 6-8% pretax. Returns are taxed as income, so I now invest exclusively in a Roth IRA.

    I’m planning to write a post soon on my Prosper experience, would love to hear your thoughts when it posts! Cheers –Rich

    1. thefinancialjourneyman Post author

      Hi Rich,

      Thanks for the comment.

      It is an interesting and unique asset class.

      As of late, I have been doing some research on P2P.

      I am still debating about getting started with this type of investing.


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