What is peer-to-peer lending?

Peer-to-peer lending is characterized by its direct connection between individuals who lend and borrow money without the involvement of traditional financial institutions, such as banks. This system leverages online platforms to facilitate these transactions, allowing borrowers to access funds from multiple individual lenders who are looking to earn interest on their savings.

The core principle behind peer-to-peer lending is that it reduces the need for banks as intermediaries, thereby often lowering costs for borrowers and potentially offering higher returns for lenders compared to traditional savings accounts or less risky investments. This innovative approach democratizes the lending process, making it more accessible and flexible for individuals looking to obtain loans for personal projects, business initiatives, or debt consolidation.

In contrast, other options like involving banks as intermediaries, investing in government bonds, or structuring corporate loans do not accurately reflect the fundamental nature of peer-to-peer lending, which focuses on individual transactions outside traditional banking frameworks.