What is peer to peer lending? How to borrow money through a peer-to-peer
Traditional loan method methods
Initially, money-holders will lend money to people who lack money to do business or settle. work arising during daily activities. Lenders will get interest from this loan.
Later, a group of moneylenders was formed, or some places have a form of contributing to them, … is a group of people who will contribute money, then take turns taking the total amount, eventually everyone has a large amount of money to do their jobs, which only pay a small amount every month. This form still exists today.
Credit funds, banking organizations are formed, functioning as an intermediary to circulate money among individuals, organizations, focal points to mobilize money from many people, then re-lend. For mutual benefit, depositors get a savings interest rate, the bank gets interest from the difference between loans and deposits (Example: The bank deposits money at 7% interest rate, re-lends it with the interest rate of 11 % => The bank will have a difference of 4%), the borrower will have abundant capital to do business, make a profit, after deducting all costs and interest, the interest will remain. The invention of financial systems and institutions is a wonderful invention, helping the economy run smoothly, all participants benefit from it.
Related to lending is the introduction of a peer-to-peer lending system. This is a combination of old methods of lending with information technology to create an intermediary system similar to banks, but not directly lending, but only providing support to those who have money. make loan decisions.
Further analysis, we will know what components of a peer-to-peer lending system include? (You can skip this part because it is professional, it does not help you in borrowing money. Go to the How to borrow money through peer-to-peer lending system!).
- Firstly, the participants:
Including people who have money to borrow money, business people borrow money, people need to spend money borrowing, ….
The next object is a money lender: It can be the giants, pawnshops, owners, business people, … generally individuals with money.
These objects are the initial basic components of the loan.
- The second is the system.
The system consists of many components, it can be a website, a mobile application, a customer care system, a decision support system, a large data analysis and management system, email marketing, fanpage, …
Principles of operation of a peer-to-peer lending
The system is a processing center, a hub to connect the needs of the participants.
For example, if A needs a loan, the system will record and evaluate A and then suggest to B who has money that he should lend him a suitable amount. B will base that suggestion on lending money to A. The system will transfer money to A loan and track the loan or B will directly transfer money to A loan and the system will monitor the loan until the end of the loan.
So what is the peer-to-peer lending model different from modern banks?
Modern banks today, as we all know, always update the latest and most modern technologies to their businesses. Is processing transactions and making loan decisions possible, sometimes more modern and superior than peer-to-peer lending systems? So is there really a difference?
There is still a difference. I have listed some basic points according to the table described below for your convenience:
|Element||Modern Banking||Peer to peer System|
|Community||As an organization, manage their customer according to its own policies.||Community-based|
|Decision||The bank decides to use the sender’s money to lend.||Decide for your own loan.|
|Risks||Bank bear, guaranteed by the State Bank in Vietnam often does not allow bankruptcy, but according to the law, the money you deposit into the bank when bankrupt, deposit insurance only refunds you up to 75 million VND (According to the Decision 21/2017 / QD-TTg of the Government of Vietnam )||Lenders, you personally bear, maybe some peer-to-peer lending systems will have a way to minimize the risk or share a part of the risk with you.|
|Legal||Clearly, the state is strictly regulated.||The state has no specific regulations, but will not ban and will be ready to handle if you take advantage to perform bad purposes leading to other violations.|
|Loan value,interest rate||often High, long term, low interest rate||Usually small, short loan period, high interest rate.|
|The value of||Solving the capital demand for the market, regulating the money circulation, transparency in non-cash transactions, helping the state manage the capital and credit needs for the economy, …||Contributing to addressing capital needs in case of failing to access capital sources of banks and other financial institutions. Diversify the investment portfolio for individuals with higher profits than bank deposits. If it works properly, it will limit and repel black credit to help society reduce illegal lending behavior, in line with state policy orientations.|
How to participate in peer-to-peer lending system safely?
In countries other than Vietnam, the peer-to-peer lending system is growing very strongly. The benefits that this system brings are many but the downside, the process also exists in parallel.
When participating in a peer-to-peer lending system, you should pay attention to the following:
For lenders: When a lender participates in the peer-to-peer lending system, you are often credited as an investor, your loan amount if you send it to the borrower through the peer-to-peer lending system. will be recognized as an investment, not as a deposit or any deposit, and of course will not be insured, possibly lost. This depends on the policy of each peer-to-peer lending system. So you need to pay attention to the following:
Where is your money located? Who manages?
Is your money really being used for the right purpose? Do you want to be transferred to the right borrower? How to verify?
Imagine if your money is deposited into the account of a peer to peer lending company, or an individual representing the peer lending system. Two situations are possible:
First: A fraudulent individual can use this money for other business purposes such as investing in real estate, making a profit and then paying an interest on your loan. and you still think your money is to lend to others and generate interest. You should be observant, observing the frequency of demand for loans sent to you by the system, will your money stay in the loan system account for too long?
Second: Worse, if faced with a scam situation will take your capital for evil purposes, when it all breaks down, you will lose everything.
Can you contact the borrower when you need it? Do you know the correct information people you lend or not?
Usually the advantage of a peer-to-peer loan system is that you may not need to be aware of the borrower’s face when lending, as the system already knows and verifies this borrower. This depends on the policies and practices of each peer-to-peer lending system. However, if it is a peer-to-peer loan, you are always entitled to the information of the person you are lending to, and can be contacted at this individual at any time, and meet, and verify in the manner of only you. But in reality we often do not do this, it is too time-consuming to make us lazy.
For borrowers: Some individuals are often not interested in choosing a peer-to-peer loan system when participating. Because your purpose is to borrow money, other things are not important. However, you need to be aware of this problem. Money is not easy for everyone to handle. Benjamin Franklin once said, “The creditor has a better memory than the debtor.”
Read the terms carefully, if any, to see if there are any other conditions that are normally binding.
Who is your lender? Normally, some lending systems will transfer money to you, you only know you borrow money from this peer-to-peer lender but not any individual. If this is the case, you should find out more information about this peer-to-peer lender, its function, the legal, prestige in the market through operating policies, not promotional images.
What is the loan interest rate? You need to borrow money with the cheapest interest possible, and the largest possible loan? Is this possible? Note: If the interest rate is too high, the lender may be criminally prosecuted for giving us loan. And these lenders are also often gangsters.
The basic process of borrowing money at a peer-to-peer loan system:
Normally, peer-to-peer loan systems exist in the form of websites or mobile applications. You log into the system, then declare loan demand information. The system will process your request and send it to the appropriate lender.
When the lender agrees, the system will transfer the money to you or the lender will transfer money directly to you via bank transfer.
When the loan is due, you must repay the loan principal and interest in full to get the loan.
You can see more specific examples on how to borrow money through the CreditBird system here.
peer-to-peer lending (P2P) is a form of technology used to connect borrowers and lenders together, helping to address the needs of temporary individuals, diverse. If you operate properly, it will repel black credit.
When participating in P2P systems, you should pay attention to the form of operation of the system, the requirements for users. Answer yourself the questions: is your money managed, is it for the right purpose? How can that be verified? Who is the object for me to borrow money? Is there a contact?
According to CreditBird