The popularity of peer-to-peer lending has grown significantly since the global financial crisis of 2007-2008. The decision by standard banks to tighten up lending opened a new window of opportunity for the free market to devise a lending system that people could use to borrow money. Ten years down the line and P2P lending is still grabbing headlines in with its explosive growth rate.

How fast has P2P grown? Well, according to information collected by AltFi, P2P lending volumes have attained an astounding compounded growth rate of 110% per annum from 2011 to 2017, and it displays no signs of letting go this year.

For those not acquainted with P2P lending, here is a straightforward definition.

We can simply define P2P lending as the process of lending money to individuals and businesses via online platforms that match borrowers with lenders.

Potential lenders are presented with profiles of the borrowers, and it’s up to them to decide whether they’ll risk loaning their cash to the persons/businesses or not. A lender also gets to determine if he or she will lend the entire amount requested by the borrower or just a portion of the amount.

You can pick from a number of popular P2P lending platforms in the United States, including www.lendingclub.com and many more. Since these lending platforms offer all their services online, they run on low operational costs and offer their services at affordable prices compared to conventional financial institutions.

As a result, lenders earn more profit than if they had banked their money with banks, and borrowers receive loans at the lowest interest rates.

Types of P2P loans

There are different types of P2P loans, but commonly provided ones include personal loans, business loans, and auto loans.

1. Personal loans

Personal loans are the most offered loans on P2P lending sites. These loans also have fewer restrictions compared to the other types. The only factor considered in personal loans is credit quality.

While banks have a reputation for granting loans to individuals with excellent credit scores, Lenders on P2P sites are more lenient, and most of them are willing to lend people with “fair” credit scores. Having an excellent score is a bonus because you can borrow up to 40,000 dollars on an unsecured loan.

2. Business loans

P2P lenders are rapidly filling up the business loans niche, and this is a good thing. While lots of traditional lenders advertise on online platforms that they provide business loans at low-interest rates, they tend to have stringent lending criteria. They’ll require absurd amounts of documentation, and sometimes won’t even approve the loan.

P2P lenders, on the other hand, bring the same advantages found on personal loans to business loans. These include a straightforward application procedure, low-interest rates, quick turnaround times and a better credit score flexibility.

3. Auto loans

Auto loans are classified as unofficial types of loans on most P2P lending platforms. One can apply for a personal loan and choose to spend the amount on refinancing or buying a car. Most of the time, borrowers do not specify that they require an auto loan.

Better yet (for those who opt to specify they’re applying for an auto loan), the car you purchase will not secure the loan. This is essential if you depend on your vehicle to generate income.

The fact P2P lending has become a norm in several situations where financing is necessary just goes to show its decisive role in the modern economy. It’s a safe bet peer-to-peer will continue to be a reliable means of achieving financial goals for decades to come.