Peer-to-Peer, also known as Person-to-Person Lending, is a fairly new way for consumers to obtain financing without going through banks. The transaction occurs between a borrower and a lender or lenders who are other individuals -- not banks.
Often many different lenders compete for your business which helps you as the borrower obtain the most competitive rates and terms. Just like with banks, borrowers' credit scores are the primary criteria used when Peer-to-Peer lenders evaluate funding requests. Lenders assume the risk of lending the money if the likelihood of default is low, which they determine by evaluating consumers' credit scores. As with other financial options, it is very important to keep an eye on your credit if you are considering a Peer-to-Peer loan.
Peer-to-Peer lending is becoming more common and popular in the Web 2.0 era as it presents a social component to borrowing money.
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