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Consumer-to-consumer lending involves individuals who give money to a third party, who in turn makes loans to other individuals. This practice is more prevalent with the increasing availability of ecommerce. Using the Internet, individuals can earn interest by working with a venture capital firm. Using an online account, the financial transactions occur fairly easily and the two parties involved in the loan process do not even meet. The third party completes the entire exchange for a small fee.
In a very minor sense, consumer-to-consumer lending occurred historically through banks. When an individual deposited money at the financial institution, the bank was able to lend the money to other individuals. This process allowed savings account holders to earn a portion of the interest made by the bank loans given for mortgages or other purposes. However, interest earned through savings accounts is much less compared to other consumer-to-consumer lending options. Low interest returns is typically what drives the need for other investment options.
Before the prevalence of the Internet, individuals could make personal or business-type loans through consumer-to-consumer lending in their local area. The problem with these transactions is that borrowing money was highly regionalized, as the ability to loan money throughout the country was not often possible at the consumer level. Written contracts were the primary tool for making the agreements. Contracts included on information for loan repayment, interest rate, adjustable terms and violations that would cancel the agreement.
Internet consumer-to-consumer lending creates a larger variety of lending opportunities. Consumers are no longer bound by their immediate region or the projects that are occurring within their area. Many websites promote venture capital investing and other types of consumer lending practices. Those running the websites will usually review various opportunities and select the best ones for their lending process. Once the investments are grouped together for lending, they may solicit investment or offer deals to consumers for the lending process.
Consumer-to-consumer lending will certainly have disadvantages and drawbacks. Going through a third party will result in investors having to rely on this company or investment group to provide information on performance. This hands-off approach can result in those lending money to be less informed about their investments. The ability to lose the entire principle may also be possible through these investments. Relying on a third-party website can leave investors with few options for recouping money as venture capital lending carries high risk.