Peer to peer lending or p2p lending is something in which companies provide two parties a way to make a deal. The parties involved are those people who want unsecured loan and those who want to investor their money in lending business. Unsecured loan means that the money which is being borrowed without submitting any security or guarantee. Almost all kinds of personal loan are unsecured loan. The different between this type of loan and other type of loan is that in this a common person who has some money in hand to invest will be lending to a common person who require it. The whole process of lending and borrowing money will be online and companies, who run this kind of lending, take lower prices then other banks and money lending companies. The best part is that because of fewer prices these people charge less interest rates but lenders still get good profit out of their investments.
People use this type of loan to pay their debts with high interest rate they also use it to pay their credit card bills. People feel more relaxed when they borrow money through lending clubs because they can par the loan easily because of interest rates.
This business has also been proven to be the great way to get profit and faster than all other investors. This type of loan is best for students too for the same reason that is low interest rate and less money to pay back.
As mentioned before p2p lending clubs mostly deal in personal loans, these are loans, which only those people, apply for who are in dire need of money and cannot afford to deal with emergencies and high expenses in short time. People who do business with p2p lending clubs, as investors are also common people. These people work very hard to get earn the money so they cannot lose that money in the name of investment. To save both parties’ money governments have made some legal regulations for personal loans and p2p lending. There is different regularity acts or laws, which save people from frauds. These laws are for all features related to credit market from solicitation to agreements, terms, and conditions of the payment, even for debt collection and marketing. These laws also prevent creditors or lenders from doing act of favoritism and being unfair to their clients whether they are investors or borrowers. These laws also make sure that lending companies are having good relationship with their clients by providing their money and data with security and privacy.
Here are some laws for banks and non-bank creditors, it is important for them to follow these regulatory acts to prevent any legal action against them.
- Truth in Lending Act: which states that creditors will have to disclose the cost of the credit and other terms and conditions properly and in detail to their clients and they cannot keep any point of the contract hidden.
- Equal Credit Opportunity Act: this acts states that creditors cannot change rules for any clients. They will have to act with all of them equally. They will have to follow same guideline to get information of credit history of all clients. If they are rejecting loan to any one, they will have to give a written notification about the reasons of credit denial.
- Fair Credit Reporting Act: they will have to ask for permission to get credit reports of their clients.
- Electronic Fund Transfer Act: there should be some rules about the rights and responsibilities of those people who are involved in electronic funds transfers and they should also give protection to those clients who use EFT systems.