Within the Fintech sector, entities that offer financial services using technology, person-to-person loan companies also known as peer to peer lending (P2P Loans) have been gaining ground in recent years.
These companies put individuals who want to lend money in contact with others who need a loan through a technological platform.
The idea of these companies is to dispense with the financial intermediary and that the people who participate by granting loans can receive a better return for their money, while those who require a loan pay less for financing.
Among some companies that provide these services are Prestadero, Yo te Presto and Doopla, to name a few.
When we enter the website or the Apps of these companies, we can see that there are sections for those who want to apply for a loan and another for investors (those who want to grant loans).
Those who wish to apply for credit must complete an application that will be reviewed by the Fintech P2P lending company and, if approved, the application will be shown to investors who wish to grant loans.
For those who want to invest, after registering, they can access the list of requested credits, where they can see the level of risk of the applicant and the interest rate that would be received for granting the credit.
The work of the Fintech P2P loan company is fundamentally to review the credit history of the applicant, their ability to pay and the use that will be given to the credit to determine if they are subject to credit. If so, the request is made visible to investors. Subsequently, if the financing is granted, it monitors the collection of the credit to try to enable the investor to recover the borrowed capital and its returns.
The profit of these platforms comes from a commission that they charge for opening the credit, as well as a fixed monthly commission while the credit is in force.
One of the most relevant aspects that must be taken into account is that the platform does not guarantee the repayment of the credit. The function of the platform is only to put in contact those who need a loan with those who have resources to invest. If the person who requested the credit does not pay, the investor will not be able to recover all his capital or obtain the expected return. Hence the importance of the investor diversifying, dividing the capital he has to lend among several people to reduce risk.
The interest rates for obtaining a loan on these platforms may be lower than those that can be obtained in other institutions, but it depends on the credit history. In the case of investors, they can obtain higher returns than with other instruments but, as I have always emphasized, they must take into account the risk.
Fintech companies are one more alternative for people to obtain resources and make investments with better interest rates, but as in everything, we must fully understand how they work, as well as the risks involved when using this type of service.— Mérida , Yucatan.
@kookayfinanzas
University Professor and Financial Consultant