If you have listened to the news of late you might have heard all about peer-to-peer lending and indeed its increasing popularity. As bank loans are getting more difficult to secure, more people are turning to P2P lending companies.
Zopa is the latest online company who deals in P2P loans to have announced a substantial profit. Any profit is good especially in this climate. So how exactly do companies like this operate?
In essence when someone contacts the online company, they will direct the borrower to the relevant lender and will take a commission for doing so. At the end of 2011 the company has a pre tax profit of around £26,000.
P2P lending cuts out the middle man by removing the banks or financial institutions from the lending process, thus making it easier and indeed far less time consuming. With the strict control over bank lending and the changing circumstances of many individuals, businesses and families, a similar type of loan that is increasing is the payday loan. Many of these utilise the P2P loan methods.
The only real difference is that many P2P lenders will look for a decent credit history, whilst payday loan companies don't place as much emphasis on this criteria. Instead they look for the fact that the applying borrower has some form of employment and can prove this by use of wage slips, In addition the borrower needs to have an in use bank account.
It seems that companies are really starting to think outside of the box, when looking to loan investment. I wonder what will be next.