Peer-to-Peer Lending: Revolutionizing the Lending Paradigm
conventional monetary system is an outcome of various financial
evolvements in the past. In early civilization, human beings started
transactions in the form of a barter system. There was no currency
and merchants traded their physical goods, mostly with cattle and
food grains. Further, the instances of the quasi-banking method
allowed for the documentation of banking activities.
gold and other precious metals became the commodity for exchange and
storage. It was in the later period of the 17th
century that banking became financial intermediation between the
borrowers and the lenders. The traditional functions of conventional
banking involve accepting deposits, transfer of funds and lending of
the major obstacle arises for the issuance of loans. The
functionality of banks in performing loan functionality is bizarre.
At times, a bank charges up to 25% of the interest from the borrower
and lends at a minimum of 5%-6%. The balancing is with the banks in
the form of profits. Thus this is an alarming situation where banks
make profits at the edge of customers. With the bad credit history
and low credit score, borrowers approach for “payday loans”. This
situation even erodes customers’ faith from the system and
subsequently makes borrowers entrapped in the debt circle.
The subprime mortgage financial crisis in 2008 made customers lose their interest in the banking system. Thus, the white paper of Satoshi Nakamoto is the answer to all the failures of the current payment system. Blockchain technology is revolutionizing the ecosystem for the common good of all the parties.
Peer to Peer Lending Software
Peer to peer lending software, also known as P2P lending software, is the solution for the entire ruckus created by the current loan payment system. The system offers crypto-backed loans and the concept is gaining rapid momentum and acceptance. A P2P lending platform eliminates the paperwork involved in the lending process and allows the borrowers to acquire loans at a lower interest rate.
the contrary, in the conventional payment system, borrowers have to
go through a long documentation and verification processes. They are
even charged with an inflated rate of interest on loans.
the P2P lending process helps overcome the challenges of a
traditional lending process, it is rapidly gaining popularity
worldwide. In this process, a loan is given to the borrower based on
his/her collateralized amount. For example, if LVR (loan to value
ratio) is 50% then it signifies that out of the total collateralized
amount 50% will be regarded as a loan. The loan is secured against
the smart-contract-based operating system on the blockchain protocol.
The contract can be modified according to the requirements of the
buyer. The duration of the contract ranges from days to months or
the negotiation process, neither the credit score nor the history of
the loans is checked. Unnecessary documentation or paperwork is
eliminated from the process. Basic identification and verification
are illustrated on the blockchain and loans are remitted to the
Indeed, in the situation of the inflationary environment of the country, borrowing from local banks becomes an impossible task. Therefore, crypto loans can serve the purpose in the advanced and secured manner.
underlying process of P2P lending platform
to peer lending software works
in a similar fashion as of traditional loan banking. Mutual
coordination is maintained between the lending platform, borrowers
and lenders. The borrower has to make an interest payment which may
be fixed or floating. Various conditions such as quality of the
collateral, tenure of the loan, market conditions and others are
considered in the contract.
After the principle amount and interest payment are paid, the collateralized cryptocurrency is returned to the borrower. Given the volatile nature of cryptocurrency, there is a mechanism of margin calls. As the value of collateral decreases, the borrower is liable to add further cryptocurrency in the software to maintain the desired balance. Margin calls protect the interest of the lenders from the downside risk.
lending software: What all should be considered?
are various checklist items that should be considered before while
creating a P2P lending platform.
Loan to Value Ratio
to value ratio (LVR) is defined as the ratio of the value of the loan
that can be provided to the borrower based on the collateral that he
has deposited. It is generally expressed in the form of a percentage.
put in numbers, if a borrower borrows $70,000 for a property worth
$100,000, then the LVR would be 70,000/100,00 that is 70%.
high LVR ratio means that the lender has to provide a higher sum of
money to the borrower for the same collateral value. Generally, in
to peer lending software,
a borrower loses his crypto assets if the value of cryptocurrency
decreases to a particular limit as it increases the risk for the
lender of money.
is why, in the crypto-backed loans, the LVR ration generally remains
around 50% to secure the position of both borrowers and lenders.
borrower has to pay the interest rates at a subsequent period to the
lender for providing the loans at the time of need. In P2P lending,
there are generally lower interest rates as there is a direct
relationship between the borrower and the lender. Thus, it would not
be wrong to say that peer
to peer lending software cost
less in terms of interest rates.
crypto-backed loans, cryptocurrency acts as collateral even for fiat
currency loans mainly US Dollars. While forming declarations, all
terms and conditions must be set before moving forward. The time,
processing fee, LVR rate and others must be considered beforehand.
For instance, a borrower requires a loan of $4,400 then he must
ensure $8,800 in terms of collateral with the software, considering
LVR as 50%.
loan taken has to be repaid within the due time frame. In the case of
defaulting on repayment of loans from banks, there is a reduction in
credit score, leading to bad credit history. The personal account of
defaulter may also be seized by the bank authorities.
in the case of crypto-backed loans, there is no minimum time frame
for the repayment of the loan. This mechanism allows the borrowers to
repay the loan in smaller batches, thus also freeing them from the
of P2P lending
P2P lending software is multifarious. This platform enables transparency and openness of transactions. The mutual conduct within the borrowers, lenders and platform owners is also maintained. This mechanism assures the lender for the repayment of the principal amount along with the interest. Moreover, the defaults in the crypto-backed loans are minimal due to their proper aspect of collateralization.
system functions in the best interest of those who aspire to keep the
cryptocurrencies for the long term period. It also ensures that the
capital is usable while retaining it.
All of the points aforementioned conclude that peer to peer lending software has a long way to go. Business entities are yet to embrace the full potential underlying this technology, however, it is estimated that the lending market will reach $290 billion by the year 2020.
you are planning to build a P2P lending platform to tap into the
billion-dollar lending market and rake in huge profits, we can help.
provides you with a diligently-crafted, feature-rich white label
lending solution that expedites deployment and reduces the
Schedule a free demo to gain in-depth insight into the features and working of our turnkey lending platform or talk to our experts to share your development needs.