What does peer-to-peer lending involve?

Peer-to-peer lending involves the process of matching investors directly with borrowers, acting as an intermediary that connects those who need funds with those who have money to lend. Unlike traditional banking where financial institutions manage the lending process, peer-to-peer platforms allow individuals to lend to one another, often leading to varied interest rates based on borrower risk assessments and investor preferences.

In this model, borrowers can benefit from potentially lower interest rates than those typically offered by banks, while investors may earn higher returns compared to conventional savings accounts. The direct connection facilitates a more personal lending experience and can provide access to funds for those who might struggle to secure loans through traditional means. The flexibility and efficiency of this system distinguish it from conventional bank lending practices and investment strategies like stock market investing.