What is a peer-to-peer loan? (1 point) Responses a loan from one entity electronically matched to another entity without a financial institution in the middle a loan from 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 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 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
a type of loan where the title to an asset is used as collateral
A peer-to-peer loan is a loan from one entity electronically matched to another entity without a financial institution in the middle. It is a type of loan where individuals can lend and borrow money directly from each other without the involvement of a traditional bank or financial institution.
A peer-to-peer loan is a loan from one entity electronically matched to another entity without a financial institution in the middle. This type of loan is facilitated through online platforms that connect borrowers directly with individual investors. Here is how a peer-to-peer loan works:
1. Application: The borrower applies for a loan online by providing personal and financial information.
2. Assessment and Approval: The lending platform evaluates the borrower's creditworthiness based on their credit history, income, and other factors. The platform assigns an interest rate and loan terms based on the borrower's risk profile.
3. Loan Listing: Once approved, the borrower's loan is listed on the platform, where individual investors can review and choose to fund a portion or all of the loan.
4. Funding: Investors contribute small amounts to fund the loan, spreading the risk across multiple investors.
5. Loan Disbursement: Once the loan is fully funded, the borrower receives the loan amount directly in their bank account.
6. Repayment: The borrower makes regular payments, including principal and interest, directly to the lending platform. The platform then distributes the payments to the investors.
It's essential to note that peer-to-peer loans may have varying interest rates depending on the borrower's creditworthiness and the investor's risk appetite. These loans can sometimes offer lower interest rates compared to traditional bank loans, but they may also come with higher interest rates for riskier borrowers.
By streamlining the lending process and connecting borrowers and investors directly, peer-to-peer lending provides an alternative to traditional financial institutions for obtaining loans.