Question

1. How did the idea of P2P lending come up in general? Why do credit cards have to charge high rates for short term? How do you compare P2P marketplace lenders to commercial banks? (P2P lending = peer to peer lending)

Answer 1

2How did the idea of P2P lending come up in general?

The reason of P2P (Peer to Peer) lending came up due to the reason that banks and financial institutions have lot of long and complex formalities.it gave a lot of flexibility to the borrower as well as lender. this P2P lending removes the financial institution in between lender and the borrower. there borrrower gets a better interest rate as compared to the banks or financial institution and the lender also can know the borrowers profile before lending.

in regular bank financing the bank usually lends complete loan to the individual but in this P2P lending individual can be a borrower from multiple lenders. Here the borrrower and lender are in direct touch through a P2P platform.

How do you compare P2P marketplace lenders to commercial banks?

Banks make the borrower undergo a lengthy and complex process. they have to follow the guidelines laid down by the regulator of the bank. In P2P platform the borrower and lender mutually negotiate the terms and then finalise the deal. Banks have to answer their depositors with regards to the parking of the funds. in P2P , the lender himself is there owner of his funds.

Why do credit cards have to charge high rates for short term?

Usual bank credit is backed by security which makes the interest lower in the credit. The person who takes auto loan gives the automobile as security, housing loan has got the house as security,etc meaning these are secured loans but the credit card limits are totally unsecured. The bank issues credit card based on the past payment track record and therefore if there is a default in credit card bank will not have any security to take possession of. Thus the higher possibility of risk in credit card explains the higher interest rates.