In one sense, peer to peer lending is as old as humankind. At some point, one caveman lent another caveman an axe, and we’ve been borrowing and lending ever since.

Traditionally, lending was limited to people who were close enough – geographically and personally – to perform the transaction. In other words, family and friends would lend money to each-other.

Modern technology has changed all that. Peer to peer lending sites harness the power of the internet to bring together borrowers and lenders from across the world.

So, how do peer to peer loans work, and are they the right investment for you? Here’s everything you need to know about this new technology.

Different P2P lending platforms offer different loan terms and interest rates. They also use different metrics to determine a borrower’s creditworthiness.

P2P Lending Basics

Types of Peer-to-Peer Loan

Different peer-to-peer lending sites will have their own selections of loan offerings. Here are the most common types of loans:

Personal loans are small loans, generally $35,000 or less. They can be used for just about anything, from home improvements to debt consolidation.

Personal loans

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