Peer-to-peer (P2P) lending uses online platforms to connect lenders and borrowers directly, without the use of conventional financial intermediaries, like banks, writes Jagjit Singh for CoinTelegraph.

In P2P lending, also referred to as marketplace lending, individuals or businesses looking for loans can request funding on a P2P platform by creating loan listings. Using the same platform, individual investors or institutional lenders can then analyze these listings and decide if they want to offer funding based on their level of risk tolerance and expected rate of return.

P2P lending platforms serve as intermediaries. They enable the loan application, credit evaluation, and loan servicing processes.

The loans can be used for many things, from debt consolidation and small company loans to school and personal loans.

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Currently, one of the largest P2P lending platforms in the U.S. is LendingClub. Among available offerings are personal loans, business loans, and auto refinancing options.

P2P lending can be used for earning passive income by lenders. For example, P2P lenders can receive recurring interest on their loans, which can be a source of passive cash flow.

Additionally, P2P lending systems provide investors with passive portfolio management, which lets them earn income without actively managing loans.

These platforms also offer automated features and tools that automatically distribute funds to new loans based on preferred criteria set by lenders. This eliminates manual selection and investment decisions.

Fred Hubler, CEO and Chief Wealth Strategist of Creative Capital Wealth Management Group in Chester Springs and a Forbes.com contributor, has worked with alternative investments since starting his firm more than 20 years ago.

“With some banks reducing their loan portfolios, I’ve seen an increase in private funds that provide lending to these businesses,” said Hubler. “Bottom line, loans could be good investments if you can lend to the right people and businesses.”

Over time, lenders can expand their total loan portfolio as borrowers repay their loans and raise interest income by repeatedly reinvesting the repayments.

Read more about how peer-to-peer lending can earn you passive income at CoinTelegraph.

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