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PERSONAL FINANCE
Money in the digital age
Borrowers
After being subject to a credit
check and graded for credit
risk, borrowers usually receive
funds a few days after applying,
although the transfer may take
up to 14 days. Borrowers
usually require a credit score of
- The loans made range
from $1,000 upward.
Lenders to borrower The
amount loaned to an individual
borrower is pooled from the
funds of several lenders.
Lenders to borrowers Lenders
spread the amount they are
willing to lend among several
borrowers, reducing their risk.
Borrower pays
back loan + 9%
interest on repayments
SPREADING YOUR RISK
Some lenders reduce their risk by actively managing their
loans, providing a portion of what they are willing to lend to
one borrower, and leaving other lenders to provide the rest.
❯❯Defaults A P2P lender risks not
being repaid if the borrower
defaults on their loan.
❯❯Intermediary only P2P firms
do not have large cash reserves.
❯❯Protection Savings are not
FDIC-insured.
❯❯Liability If a P2P firm goes
bust, lenders are then liable for
collecting the loans themselves.
❯❯Untested As P2P is a relatively
new form of lending, it has not yet
been tested in a tough climate
such as a recession.
WARNING
LENDERS BORROWER LENDERS BORROWERS
$ 1 trillion
the forecasted value of
global P2P lending by 2025
US_228-229_Peer_to_Peer_Lending.indd 229 07/11/2016 11:22