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Peer-to-peer lending is a common topic of interest among borrowers and their financial advisers. Peer-to-peer lending, otherwise known as P2P lending, is a practice in which individuals borrow money from a business or group online. Since the entire process is online, there is a fundamental assumption that interest rates are lower and that the loan nature yields a higher return rate compared to traditional bank lending. It is also known as crowd-lending.
The number of applications for P2P loans has gone down in the last few years. Most financial advisors attribute this to the unstable local economy. Nevertheless, there has been a shift in how P2P loans are seen, with economic groups encouraging more people to utilize peer-to-peer lending, particularly if an individual has a high-interest debt on their credit cards.
There has been an unhealthy practice of applying for loans to pay off existing ones, an irrational move, but one that has ensnared many borrowers, nonetheless. The consequences are obvious: people spiral into more debt and do not find a way to properly pay off their loans. The borrower usually speaks with his or her local bank and some form of compromise is made, usually in the form of the borrower paying a high penalty.
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This can be potentially avoided with a P2P loan, which offers an alternative means to break out of the cycle of debt-aggravation. It must be emphasized, though, that peer-to-peer lending is not a fail-safe method. There are inherent risks involved in conducting business online. Individuals also have to be wary of sensitive data being stolen, especially in sites that have not been properly secured.
Steve Liefschultz is the chairman and chief executive officer of Equity Bank, a locally owned and managed finance company that specializes in investment lines of credit and real estate loans in Claremont and Minnetonka, Minnesota. Peer-to-peer lending is part of its services. Learn more tips about lines of credit by visiting this Facebook page.