What is P2P lending?

P2P lending, or peer-to-peer lending (sometimes referred to as crowdlending), is an innovative method of providing and obtaining loans that serves as a direct alternative to bank products. Instead of borrowing from a single financial institution, companies and individuals can secure financing directly from dozens or even hundreds of individuals willing to provide their funds through an online platform. These platforms act as intermediaries, connecting lenders with borrowers and managing the entire lending process, from credit assessment to loan repayment.

P2P lending lowers barriers to credit access, which can be especially beneficial for individuals who have difficulty obtaining financing from banks. For lenders, it offers the potential for higher returns compared to traditional savings accounts or investments. For borrowers, it can mean access to loans with lower interest rates and more flexible terms.

How does P2P lending work?

P2P lending operates through an online platform that connects lenders (individuals or institutions) with borrowers seeking financing. The process begins when a borrower submits a loan application on the platform, providing information about themselves and the purpose of the loan. The platform then assesses the borrower’s creditworthiness based on various criteria such as credit history, income, or debt burden.

Based on this assessment, the loan is assigned a risk category that determines the interest rate. Lenders can then choose which loans they want to invest in and can spread their investments across multiple borrowers, thereby diversifying their risk.

Once the loan is approved and the necessary funds are secured, the borrower begins repaying the loan according to an agreed repayment schedule. The platform manages the payments and distributes them to lenders. This system allows borrowers more efficient access to financing while offering lenders an opportunity to achieve attractive returns.

What is P2P lending used for?

Consumer P2P loans are one of the most common types. Individuals can borrow money for various personal needs, such as purchasing a car, renovating a home, or consolidating debt. Platforms often offer competitive interest rates that may be lower than those available from banks or other traditional lenders.

Why Is P2P lending important for the National Bank of Slovakia?

If you are considering using P2P lending services, we recommend thoroughly understanding the risks and consulting with an expert.

Documents from international standardization institutions

European Supervisory Authorities

International organizations in financial market regulation