Social lending (often abbreviated as P2P lending and in Italian as a loan between private individuals) is defined as a personal loan granted by private individuals to other private individuals on the Internet, through the sites of social lending companies, without therefore going through the traditional channels represented by financial companies and banks.
Origins and development
In 2005, in Britain, Nopa Ltd introduced social lending, now also known as P2P (Peer-to-Peer) lending. In a few years, on the push of the 2008 financial crisis, it has become an alternative financial model that works on a large scale. There are now over 60 social lending platforms active worldwide with peaks of excellence in the USA.
How does it work?
This form of loan is attributable to non-finalized personal loans, one of the most used types of consumer credit. With social lending, those who lend money and those who receive it on average receive or pay a more favorable share of interest than that proposed by traditional financial institutions. This is possible because the brokerage costs are reduced, as the lender and the applicant are put in a direct relationship.
Each applicant is assigned a rating, i.e. a level of reliability, by interrogating the private risk centers, in a similar way to what banks and financial institutions do.
The poorer the level, the higher the interest rates for the lenders to compensate for the risk.
The loan is disbursed after an analysis of the documentation provided by the applicant to prove what was declared online.
The refund of the financing
The applicant repays the loan with a monthly installment, normally by direct debit from the bank account and it is then the job of the social lending intermediary to redistribute the installment to the lenders according to the principal and interest portion due.
In the event of default by one or more applicants, the intermediary company activates the credit recovery programs on behalf of all the lenders involved.
From a legal point of view, both the lender and the applicant enter into a contract concluded remotely with the social lending company, in particular the applicant recognizes himself as a debtor of n lenders, each identified by his nickname (only the company knows the identities royals, lenders and applicants know each other via nickname). The loan granted by the lender is not protected by guarantees in the event of default by the applicant. In case of bankruptcy of the social lending company, the lender’s money is protected by the actions of the creditors of the company itself and the restitution of the remaining installments continues by the bankruptcy procedure.