What is a peer-to-peer loan?
• A loan form one entity electronically matched to another entity without a financial institution in the middle.
• A short-term loan at high interest rates initiated by a worker who needs cash immediately.
• A loan given without review of the borrower’s credit report or credit score.
• A type of loan where the title to an asset is used as collateral.
The correct answer is: A loan form one entity electronically matched to another entity without a financial institution in the middle.
A peer-to-peer loan refers to a loan form where one entity electronically matches with another entity without the involvement of a financial institution. This means that individuals or businesses can lend money directly to one another without the need for a traditional bank or lender acting as an intermediary. The first option mentioned, which involves the loan being matched electronically between two entities without a financial institution in the middle, accurately describes a peer-to-peer loan.
The correct answer is: A loan form one entity electronically matched to another entity without a financial institution in the middle.
To arrive at this answer, we need to understand what a peer-to-peer loan is. Peer-to-peer lending, also known as P2P lending, is a method of borrowing money where individuals or businesses can lend and borrow directly from each other without the involvement of a traditional financial institution like a bank.
In a peer-to-peer loan, individuals or businesses who want to borrow money create loan requests on a peer-to-peer lending platform. These requests outline the loan amount, interest rate, and other relevant details. On the other side, individuals or businesses looking to invest their money can browse through these loan requests and choose the ones they want to invest in.
Once there is a match between a borrower and a lender, the loan is initiated without the need for a financial institution in the middle. The platform facilitates the transaction and ensures that repayments are made.
This form of lending has gained popularity because it offers borrowers potential advantages such as competitive interest rates, fast approval process, and flexible terms, while providing lenders with an opportunity to earn returns on their investment.