LADA Project 1024 Cash Flow Opportunity for 2019

Peer-to-peer lending is mostly an online activity. Borrowers come to the various peer-to-peer lending websites looking for loans – and better terms than what they can get through their local bank – while investors come looking to lend money at much higher rates of return than what they can get at a bank.

On the surface, it may seem as if the higher rates paid to peer-to-peer lending investors would result in higher loan rates for borrowers, but that’s not generally the case.

Commonly known as “P2P”, It’s an arrangement that “cuts out the middleman”, more commonly known as the banker.
Peer-to-peer lending brings borrowers and investors together on the same websites. Commonly known as “P2P”, it’s an arrangement that “cuts out the middleman”, more commonly known as the banker.

Here’s the thing, it costs money to operate a bank. You need a physical bank branch that has to be purchased and maintained. You also have to staff the operation with employees, and that requires paying multiple salaries, as well as related employee benefits. Then there’s the acquisition and maintenance of costly equipment, such as in-house computer systems and software, as well as sophisticated security equipment.

Now multiply the costs of that single bank branch by multiple branches, and you start to get an idea why you might pay 15% for a loan at the same bank where you will earn less than a 1% return on funds held on deposit there. It’s not exactly an equitable – or democratic – financial arrangement.

P2P lending doesn’t have all that bank branch real estate, hundreds or thousands of employees, or expensive equipment. And for that reason, you might see an arrangement that looks more like 10% loan rates, and 8% returns on your investment money.

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