P2P lending

Social loans (p2p lending such as ZOPA) act as an alternative to cash loans. On the other side of the borrower-lender equation they are a very good investment, too. The contents of loan agreements work on the principle of an auction (such as eBay). Social loans make it possible to obtain financial means whose costs are substantially lower than in the case of cash credit from, for example, a bank. A similar situation is apparent on the side of the investor, who makes a greater profit than with the traditional kind of investment in a bank.

To have the ability to take out a loan by this method it is necessary to open an account with a portal which connects borrowers with investors. After opening the account, it is of course necessary to send basic data: a copy of an ID document and a declaration of earnings, which enables the firm in charge of the portal to assess creditworthiness. In addition, the borrower is given a score – placing them in a given rating category enabling potential investors to identify the level of risk. The higher the borrower’s rating, the greater level of trust will be felt on the part of the investors. This in turn ensures that even projects with a relatively low interest rate for loans will be popular among investors. The borrower may also obtain the maximum limit of credit available. There is security both for investors and borrowers, because it is not possible to enter into commitments of such a value that it becomes impossible to make the necessary repayments. A social loan is a far cheaper method of obtaining funds than traditional bank credit. There are only two costs.

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