Services Offered with Peer-to-Peer Lending
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Services Offered with Peer-to-Peer Lending
What services are offered?
Peer-to-peer lending services are fairly straightforward. There is loan origination, which involves matching lenders and borrowers, writing the loans, and actually disbursing the money.
Things To Know
- Services can include loan origination and loan servicing, though not necessarily together.
- Some peer loans are secured, others not.
There is also loan servicing, which involves creating payment schedules, collecting payments, transferring payments to lenders, and handling paperwork. Loan servicing isn’t always offered by the same companies that offer loan origination. Instead, third parties may take care of this.
Loans may be direct or indirect
Direct lending means that one lender loans money to one specific borrower; this model exposes the lender to the risk that the borrower will default. Indirect lending means that a lender lends to several borrowers or that several lenders lend to a single borrower. The purpose of both types of indirect lending is the same—to cut the risk to the lender(s) if the borrower defaults on the loan. Not only does the spreading of the money accomplish this, but so does the fact that there are numerous other loans outstanding.
Loans may be secured or unsecured
A secured loan is one that is backed by some form of collateral that the borrower puts up; if the borrower fails to pay back the loan, he or she loses the collateral. Collateral might be a piece of equipment that was purchased with the loan, for example, or it might be something unrelated. An unsecured loan does not have collateral; rather, the lender lends money based on the borrower’s credit rating. As such, an unsecured loan carries more risk with it.
