Will peer-to-peer lending change the market for loans?

What is the future of peer-to-peer (P2P) lending?

For now, it seems that this up and coming industry has a bright future ahead of it. As this blog has mentioned in the past, despite low interest rates many borrowers are still having a difficult time acquiring loans, particularly mortgages.

P2P seeks to change that. These platforms use online auctions to match borrowers directly to lenders. As a recent article in the Economist pointed out, sometimes the money for these loans comes from several different lenders at once. Depending on how it is all divided up, borrowers may end up with a relatively competitive interest rate.

Part of the reason why growth is speeding up is because P2P platforms are a decent deal for lenders as well. In fact, one example given by the news source, the British platform Zopa, offers lenders a rate of 4.9 percent.

Of course, some who are involved with these types of loans are worried about how they will fare in the long term. Though they appear to be performing well now, there is certainly a risk of future regulation if something goes wrong—like if a particular platform collapses, for example. There are also issues of insurance, since most P2P platforms are not backed by governments the way banks are.

For now, it seems that the best thing lenders can do is to use credit risk assessment software to make sure that they are making smart bets on their customers and, ultimately, preserving their lending capabilities.

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