What is 'peer-to-peer lending'?

Peer-to-peer lending refers to a method of borrowing and lending money directly between individuals without the involvement of traditional banks or financial institutions as intermediaries. In this model, individuals can lend money to others through online platforms that connect borrowers and lenders, allowing them to negotiate terms such as interest rates and repayment schedules. This approach eliminates the need for banks, typically lowering borrowing costs and offering higher potential returns for lenders compared to conventional savings accounts or certificates of deposit.

The essence of peer-to-peer lending lies in its reliance on technology and community-driven funding, which sets it apart from traditional lending models. This alternative financing option enables borrowers who may be underserved by banks to gain access to capital while providing lenders the opportunity to earn interest on their investments.