Peer-to-peer lending may be referred to as people-to-people lending. In its simplest form, it is a method for normal individuals to ask for a loan and also for common people to be able to either pay for the loan. It is usually managed by a firm such as Lending Club or Prosper. You can think of these companies as the central market where the lenders and the borrowers meet.
Similar to if a borrower wanted to obtain an online loan from an institution and then visit one of these websites and apply for an advance. This is where things begin to change towards the positive. Instead of a powerful, big bank that has unlimited power to decide whether a loan is accepted or rejected, the decision is decided by the peer-to-peer lending group who are also the lenders of these private loans.
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Each investor is in a position to look over loans they have received along with any credit information included along with the loan. Investors are able to give as little as or up to the entire sum of the loan. After the loan has been repaid and the borrower's identity is confirmed with the administrator company.
The borrower will be able to be able to receive the money and start sending monthly payments to the administration firm, who will distribute funds in proportion to the investors in addition to the interest earned on the loan. To summarize, peer to peer lending is a form of lending that is based on the receipt of loans from a community of people, rather than directly from the bank.