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Amir Khan By Amir Khan • December 13, 2017

Peer-to-Peer Lending v. Bank Lending

Do you need to borrow money? Traditionally, people have turned to their local bank to take out a loan for a range of commodities like a house, car, or even a luxury vacation. In the past several years, peer-to-peer lending has become popular due to the banking crisis that has affected people’s ability to borrow money. Companies like Upstart, Funding Circle, and Lending Club have dominated the peer-to-peer lending market and are increasingly becoming more prevalent as banking customers are frustrated with the inefficient and outdated loan process. Both lending processes are very different and have their own pros and cons.

Peer-to-Peer Lending

Peer-to-peer lending, also known as “social lending,” enables individuals to borrow and lend money without a financial institution as an intermediary. Investors are connected to borrowers looking for loans that are usually so small that banks are not interested in them. Banks charge high interest rates that are often times too high for certain borrowers, so they turn to peer-to-peer lenders that specialize in smaller loans. These smaller loans are unsecured loans, in which you can borrow a fixed amount and pay it back over an agreed term with a fixed interest.

Bank Lending

In bank lending, banks give an amount of money at interest to a borrower for a fixed term, often on collateral security. Banks provide both unsecured and secured loans. A secured loan is often for a larger amount of money, which is why it is secured to an asset. The main difference between secured and unsecured loan is that in a secured loan you will lose your asset if you do not repay it.

P2P vs. Bank Loans

Peer-to-peer loans have better interest rates and are more flexible than bank loans. For a P2P loan, you are free to make overpayments and have the ability to pay off your loan early, which saves interest. Usually, this isn’t possible with a secured or unsecured loan. Payments are fixed; even though you can pay off the loan earlier, there may be a penalty of high interest.

Peer-to-peer lending sites are primarily for people with good credit, leaving limited options for people with bad credit. People with bad credit are not eligible to borrow through P2P lending, so they can turn to smaller banks to take out a loan. In this way, P2P is more exclusive than bank lending and does not cater to our diverse population. P2P lending has become favorable for its’ easy online loan processes, which small to medium sized banks lack.

Zikher helps banks digitize their loan application process to optimize their customer experience in lending and stay competitive against peer-to-peer lenders. People enjoy the digital experience that P2P platforms provide, which is something small to medium sized banks are often lacking in their loan application process.

Zikher transcends this P2P experience by offering a competitive platform that presents a more efficient loan process. Bankers, processors, underwriters, and customers are connected on a singular platform where everyone has real-time loan information at their fingertips.