Peer-to-Peer (P2P) Lending

Peer-to-Peer (P2P) lending is a form of financing that connects borrowers directly with individual lenders through online platforms, bypassing traditional banks. P2P platforms allow individuals to lend money to others, often at competitive interest rates. This model offers borrowers an alternative source of funding and allows lenders to earn higher returns than those offered by traditional savings accounts or bonds. However, P2P lending involves risks, as loans are typically unsecured.

Example

An individual uses a P2P lending platform to borrow $5,000 for home improvements, while several investors each contribute a portion of the loan amount, earning interest in return.