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What is peer-to-peer lending? – a visual explanation in infographics

p2p lending is a very new market and finance instrument that emerged in 2005 through the creation of the world’s first p2p lending marketplace Zopa. Ever since then the field has been developing and growing at an exponential rate and more and more people have heard about it. But what is peer-to-peer lending exactly?
Not many people have crystal clear view of the working of p2p lending. And logically so as each p2p lending platform and marketplace works a bit different than the other one.
Today we will explain you the workings of p2p lending through a bunch of the best infographics and visual illustrations available around the web.

What is peer-to-peer lending?

In its simplest form Peer-to-peer lending, as the name implies, means lending money to individuals, or “peers”, without going through a traditional financial intermediary such as a bank or other financial institution. Instead online p2p lending platforms and marketplaces such as Bondora, Mintos, Crosslend, Zopa, LendingClub,..  work by matching individual lenders and borrowers online. In this way it leads to great rates for both borrowers and lenders because it’s more efficient.

Wikipedia defines peer to peer lending as follows:

Peer-to-peer lending, sometimes abbreviated P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Since the peer-to-peer lending companies offering these services operate entirely online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions. As a result, lenders often earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.

p2p lending explained in infographics

A picture is worth a thousand words!

This idiom still holds a great deal of truth and hence we bring you a couple of visual explanations of what p2p lending exactly is through some great infographics.

What is peer-to-peer lending? an explanation infographic

How peer-to-peer lending works, infographic

We hope these explanations have given you a better idea of what p2p lending is. If you have anymore questions please add them in the comments below and we will answer them swiftly.

Happy p2p lending.

For a detailed look at my personal experiences investing in p2p lending platforms for the first time have a look here.