Do you want to get into P2P lending but are worried that it is in fact a scam? Let’s say it right away, peer to peer lending is not a scam.
It is a loan system between individuals without the bank. It allows many people or companies to lend or borrow credits via digital platforms with relative flexibility. Like any other form of investment, it naturally has its advantages, disadvantages and limitations.
Loan between individuals: what is it?
The peer-to-peer loan is an alternative mode of financing that is done between individuals, without the intermediary of a credit organization. It allows private individuals to obtain loans to finance their projects, outside the traditional banking circuit deemed too restrictive.
Lenders and private borrowers are linked through online platforms where they can directly negotiate the terms of the loan.
What are the measures to be observed in a P2P
The measures to be observed are above all those set by the regulations applicable to P2P financial activities. As a lender, you are responsible for ensuring that the crowdfunding platform you are investing in is legal and reliable.
You must also submit to tax reporting obligations when the amounts lent or borrowed in P2P exceed the threshold of € 760. The parties must establish an acknowledgment of debt or written loan agreement when the value of the loan exceeds € 1,500.
What are the advantages of the loan between individuals?
The benefits are numerous for both the lender and the borrower. For the latter, the offer model allows access to credits, the terms of which he can easily negotiate. It thus constitutes an alternative solution for the borrower whose profile does not allow to obtain a loan from a traditional credit organization.
For the lender, the advantage lies more in the relatively high interest rates that it can match on the money loaned. We are talking about a yield of up to 10-12%. This makes it more profitable than most investment products such as passbooks or life insurance, among others.
What are the limits of peer to peer lending?
P2P loans do not benefit from any government guarantee and the always possible risk is that the borrower is in default of repayment. To guard against these inconveniences, most platforms adopt strict measures for joining and granting loans.
Thus, borrowers with a profile considered risky will be refused registration to financing platforms. This is the case, for example, of people subject to a banking ban and registered with the FICP or people in over-indebtedness proceedings.
What can you buy with a loan between individuals?
One of the merits recognized in the loan between individuals is the great flexibility with which the funds are obtained. Usually there is no proof to provide and the borrower can use the money however they want. Thus, he can according to his projects or needs, use it to finance construction / renovation work on his home, pay urgent bills, build up capital to start a business, etc.