Last month, banks had gained a total of USD2.3 billion in quantitative easing. However, they have not been lending to businesses and households and have just been handing the money back to the Federal Reserve because of the higher interest payout. People have been turning to peer-to-peer (P2P) lending to open businesses, according to a report published by the International Business Times.
P2P is the direct lending of money to peers without going through banks and other financial institutions. The disadvantage of P2P loans is that they are difficult to obtain because of the high credit rating requirement. Most of these loans are granted without requiring collateral, the report said.
Compared to bank loans, P2P lenders offer lower interest rates averaging 10%, depending on the borrower's credit rating. This is an attractive rate for both ends because it is lower than credit cards and higher than savings accounts. P2P loans have a repayment rate of 97%. This tells us that the model is working, the report explained.
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