When you put your money into a bank account, you’re lending it to the bank. This is why interest is accrued over time. At the same time, you can also borrow money from the bank with a corresponding interest rate. What if, instead of going to the bank, you can either lend or borrow money online? Among many things that are going digital nowadays, peer-to-peer lending is something you could consider when managing your finances.

What is peer-to-peer lending?

Peer-to-peer (P2P) lending platforms allow lenders to fund a borrower online. They exclude financial institutions so lenders and borrowers can be regular people, hence the term “peer-to-peer.”

With direct connections, lenders get a higher interest rate than through a bank, and borrowers can apply for a loan more efficiently and quickly. Lenders basically invest in a borrower’s purchase for mutual benefits.

And because it’s mostly online and digital, transactions are more convenient for both parties. P2P lending can fund various purposes like real estate, growing businesses, or even personal expenses and emergencies.

P2p Lending

How does it work?

Borrowers are required to file an online loan application. You’ll need to log the loan’s details and verify your identity. The platform will check your credit history according to your other financial information. You’ll then be assigned an interest rate depending on the amount and duration of the loan. After a few moments, your credit is in the market for possible lenders!

One the other end, lenders get to browse for loan requests. It’s almost like an online shop for possible investments. You’re provided with the cost, interest rates, and reason for the loan. Finalize the loan when you’re satisfied with the interest and are confident with the borrower’s credentials and purposes. You can either fund a whole request or pool your money with other investors to complete the funding.

Pros and cons of P2P lending

For borrowers, P2P lending provides generous loan and repayment options.

* Applying for a loan is pretty straightforward in P2P lending.

Unless you have substantial credit problems, your loan can be approved in a few hours. However, getting funding may take a few days or longer because this would depend on the lenders to invest in your application. If you worry about leaked personal details or identity theft, P2P lending websites are more secure than you might think. These platforms are always working for more security and improvements in lenders’ and borrowers’ experiences.

* P2P lending is more lenient with credit credentials.

Your credit score matters. A few bumps can still get you loan approval, just with a possibly-increased interest rate. The worse your credit is, the higher the interest may be. However, a bank loan or a credit card will present slimmer chances of approval. In this case, P2P lending maybe your best option. You can pick a smaller amount or a shorter payment period to balance this interest.



* You can borrow money for many possible reasons. 

You can apply for loans to be used for a medical emergency or refinancing debt. Lenders can see your reasons for a loan; thus it could affect their decision to finance your need.

Loan sharks may approve loans for vacation and luxury, but with much higher interest and stricter repayment schemes. Most banks and credit companies limit funding to vehicles, businesses, or real estate. For any reasonable purpose, P2P lending gives you a chance to get funded with equally reasonable demands.

* The maximum loan amount is much smaller than in banks.

If you’re thinking of buying a property, P2P lending might not top your list. Most platforms offer loans up to P 500,000 only. It’s hard to get approved for that amount if you don’t have a stellar credit history. This limit is imposed as protection to lenders who risk a considerable sum of money on the platform. In this case, you might be able to borrow a more significant amount in bank loans if you meet their requirements.

For lenders and investors, there are huge risks associated with these investments. However, picking the right borrowers would outweigh the risks and yield your full principal with huge returns.

* There’s a variety of interest to choose from in one P2P lending platform.

P2P lending investments can range up to a whopping 30% for some loans! This comes with steeper prices that take longer to pay off. This is much higher than the 0.10% to 5% rates of regular savings or time deposit accounts in banks. But unlike these accounts, you can’t merely “withdraw” an *

You have full discretion of which loan/s you want to fund depending on the details the borrower provides. You can compare interest rates, credit backgrounds, and the likeliness of full repayment. Without professional evaluation, however, you rely on the website’s capabilities and your own judgment to filter reasonable investment offers. You don’t have to fund big loans immediately. With many loan offers, surely, you can find an investment you feel confident with!

P2P lending


* P2P investing is 100% passive income.

All you have to do is find the best deal for your investment. Assuming you picked a reliable borrower, all you have to do is wait for your money to come back with interest. You receive a regular inflow of cash after the loan. This passive income from the loan interest is subject to withholding tax.

* There is a possibility of losing your investment also known as defaulting.

This can be prevented with smart investments. Start with small loans. Diversify your portfolio, so when one loan defaults, you still have other repayments to look up to. This is a similar technique for investing in the stock market. Investing in P2P is much like the stock market, but with a specific interest return, given a full repayment. You can even share investment with other lenders, like a mutual fund. This allows you to spend and grow just what you can spare.

Bottom Line:

If you’ve decided that P2P lending is the best option for your money, there are many options for Filipino investors or borrowers. Investors can lend as low as Php5,000, with an average of 24% interest rate.

You may also consider FundKo which allows loan applications for up to Php500,000. Interest rates can be as low as 1% per month for up to 36 months! Peer-to-peer lending schemes cater to your needs, whether as a lender or borrower.

If P2P may seem unfit for your needs and lifestyle, you may check out short-term lending or personal loans with GoBear! Compare platforms, interest rates, and loan offers to find the best plan for you.

short term lending


GoBear team

GoBear team

GoBear Team - Our content creators collaborate to come up with finance articles that will make financial literacy a joy to learn and financial security an attainable goal.