Peer-to-peer lending, commonly referred to as P2P lending, is a method of debt financing that enables individuals or businesses to borrow money via online services, excluding the need for a financial institution. P2P eliminates the need of a middleman from the process. This service has seen rapid growth in the recent years.

Also commonly known as crowd lending, these systems provide lending services more cheaply than the traditional lending institutions. The lenders usually earn higher returns in comparison to investments and savings in banks, while the borrowers get money at low interest rates even after P2P has deducted the fee for the matchmaking service. The absence of a middleman makes the process easier, safer, and faster than the general lending scenarios most people are accustomed to. GetLine expects that our spreads will be lower than that of most banking spreads.

P2P lending platforms offer loans to individuals that they may not have been able to obtain from legacy financial institutions. Secured loans are at times given using luxury property such as jewelry, vintage cars, watches, buildings, aircraft, and other valuable assets as a collateral.

Since the lender’s investment in any given loan is never protected by any government body, most lenders mitigate the risk of bad debt by selectively handpicking which borrowers to work with and creating a wide diversity in their investments.

To compete with other lenders, lending companies set low interest rates to give them an upper hand in the reverse auction model. Interest rates are also set by the intermediary companies after analyzing the borrower’s credit.

Advantages

Easy Approval

One of the biggest advantages of P2P is that you can almost always get approval from lenders easier than you otherwise would from most traditional lending institutions like banks. This is especially a plus for borrowers with bad credit. Although many lenders are skeptical about who to lend to, there will be a large number willing to extend financing.

Time Saving

Peer-to-Peer lending gives you access to money much faster. Where it would otherwise take you weeks to get financing with banks and other financial institutions, P2P enables you to have cash in hand on the same day you apply for it.

In contrast, management of a large portfolio may be time consuming for lenders. This is because of the wide range of loan choices which might get complicated from time to time. A lender should consider using a managed direct lending platform as an addition or alternative.

Potential High Returns

P2P loans have the potential to give you significantly higher returns than you would expect to get from a savings account. Some have been known to go as high as 20% and are more often than not quite short, meaning that you can get your initial loan back very quickly.

Criticism of P2P lending

Relatively High Risk

Lending to individuals or investing in startup businesses involves high risks that include loss of capital, lack of dividends, defaults, and il-liquidity. This should be undertaken as part of a diversified portfolio. Taxation is dependent on the circumstances of an individual lender and may be subject to future alterations, duly putting the lender’s capital at risk.

Platforms like ours have bridged the gap between lenders and borrowers from different social networks, inadvertently lowering the risk of defaulting within these different classes. This has opened new opportunities by extending crowdsourcing to unfamiliar borrowers and lenders.

We are a lending platform which has been well-functioning since 2015. But we want to do more, and are currently implementing a new, open sourced, Ethereum blockchain based, P2P lending protocol. It’s not ready yet, but it will be more than we have right now when implemented. The platform has effectively allowed for trustless credit scoring, easy lending, and effortless borrowing. It has in recent months been built upon to enable it to decentralize and scale cryptocurrency lending.

A trillion dollars was paid in credit card interests to banks in the 2000’s (In the US alone) where banks acted as the middlemen between lenders and borrowers and capitalized on the interest rates at the expense of the real economy. Because of this, it felt imperative to give people control over their spending and leisure without the setbacks of having to undergo long, tedious, and expensive financial decisions.

How GetLine works:

We offer a smart contract layer. The lending contract is safely performed and settled in accordance to set regulations for both parties.

We have a network that scores credit risks. This network is made up of entities called Attesters of Risk Analysis that provide risk evaluation of the credibility of borrowers and effectively forms a prediction market. The ARA also plays the role of Legal Compliance Agent where they assess and ensure the viability of every lending contract in accordance to the applicable law.

The past ARA’s scores are put to the test on our scoring system. Here, every ARA’s past accuracy of credit scores is provided for all to see. This fosters competition among lenders, and assesses the trustworthiness of the credit scores they have awarded to previous borrowers.

They have a very easy and user friendly browser that enables borrowers to apply for a credit score and then later a loan in addition to giving investors a forum to fund loans.

GET tokens are issued for the purpose of aligning incentives in the network. For example, in order to help stop fraudulent activity on the part of the ARAs, they must pay 1% of a loan (regardless of whether or not it defaults), in GET tokens to the network.

Following the financial crisis of 2008, banks and lending institutions were forced to tighten their policies on lending money. As a result, P2P lending came into play and is rapidly taking the financial world by storm. However, although very attractive for borrowers, P2P loans’ default rates are relatively high due to lack of collateralization.

This is why GetLine Network will create an online reputation system, where transactions are conducted among parties that trust each other and the process as a whole. They invest in trustworthiness as a form of credit, where all borrowers’ records are available for auditing and analysis, and lenders are also scored and must contribute to the platform for trustworthiness.

The P2P market is expanding exponentially with an expected annual growth rate of 51%. Borrowers with a slightly off-putting credit score than most financial institutions would allow, can get access to financial funding.

We have brought forth a quick and easy forum to connect individuals and businesses looking to make sound investments worldwide. With time, they will lead to the disintermediation of the financial system and enhance globalization of e-commerce. We believe that the development of this platform could help unbanked individuals to achieve their social and economic goals, because as of currently, many of these people do not have the means (either in identity or in available credit scores) to obtain a personal or business loan from a legacy financial institution. Through our platform, they may be able to obtain a credit score and a loan regardless of their current or past conditions.

This is one of many posts, where we’ll be writing more about our technology & background, development updates, fun & exciting news, and up-to-date information on the fintech, financial, and lending industries. So keep an eye out for our next blog post.