Crowdlending
Crowdlending refers to loans brokered via the internet that are financed by several private individuals or legal entities to other private individuals (personal loans) or to companies (corporate loans). It is also called peer-to-peer lending or short P2P lending ("peer to peer" = "from person to person"). In this process, the lenders each contribute amounts of money they have chosen to invest for a certain interest payment in return. Online platforms act as intermediaries and combine the investments into a loan that the borrower receives.
How does crowdlending work?
Online credit marketplaces act as intermediaries, checking and evaluating the individual loan applications. Based on the credit rating of the potential borrower, the loan project is evaluated, given a score and a corresponding interest rate is calculated. If the creditworthiness is not given, the loan application is rejected.
If the applicant is "creditworthy", the application is approved and the credit project appears on the platform with the corresponding interest mark-up. Investors can then enter the individual credit projects and later receive interest payments.
Banks are thus left out in the cold. For Borrowers this makes crowdlending (P2P lending) a favourable alternative to a traditional bank loan. Investors benefit from a stable alternative investment option to diversify their portfolio.