Peer to Peer Lending or P2P Lending as it is commonly known is the latest way to borrow money. In this type of transaction, money is borrowed directly from other people, online. This is a great way to transact, especially for people who want to lend money to make loans directly available to other people who need to borrow.

 

In this type of lending, there are no banks or financial institutions involved. Hence, borrowers have the chance to receive interest rates that are favorable than what they might have got if they had followed the traditional way of lending, via a financial institution. How this system works is pretty simple. The marketplace (internet) enables the "peer leaders" to locate the “peer borrowers” and vice-versa. This type of P2P model connects the borrowers with the lenders through some sort of auction like process, in much the same way as eBay or Amazon does.

 

In this type of dealing, the lender who is willing to provide the lowest interest rate wins the borrower. Apart from the borrower and the seller, the marketplace, in this type of transaction, might also include other intermediaries (third-party) who resell the loans. However, when it comes to the 'family and friend' model (which is also a part of the P2P model), the auction model is totally scrapped. Instead, it concentrates fully on the borrowers and lenders who know each other well.

 

There are benefits in both the models. While the marketplace model's main benefit is the 'match making' aspect of it, the family and friend model always pays interest in things like online collaboration, loan facilitation and even servicing.

 

Another very interesting form of social lending that has made its presence felt is known as 'Community Lending'. It is yet another form of Person to Person Lending in which intra groups are involved. This system works on the model of many to one or one to many.