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How does peer-to-peer lending work?

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Quick answer

Peer-to-peer lending connects people who want to borrow directly with people who want to invest, through an online platform — cutting out the bank. Lenders earn interest, borrowers often get competitive rates, and the platform manages matching and risk. It connects borrowers and individual lenders online.

Step by step

  1. It connects borrowers and individual lenders online.
  2. It bypasses traditional banks as the middleman.
  3. Lenders earn interest; borrowers may get good rates.
  4. Platforms assess risk and handle repayments.

People also ask

How does peer-to-peer lending work?
An online platform matches borrowers directly with individual lenders, who earn interest on the money they lend.
Is peer-to-peer lending safe?
It carries risk — borrowers can default — so platforms grade risk and lenders often spread money across many loans.
How is P2P lending different from a bank loan?
The money comes from individual investors via a platform, not from a bank's own deposits.