Though Blockchain is associated with the future of finance, it could take us back in time when it comes to the blockchain peer 2 peer lending.
Before the introduction of banks, repayments and loans were based on peer-to-peer model and people used to trust each other. But over time, trust began to lose and middlemen and third parties were added to build the trust.
No doubt that middlemen offer a layer of protection, but adds extra regulation, complexity and high fees to the borrowing and lending process.
But the blockchain is now ready to remodel the idea of peer-to-peer lending by adding transparency and trust to the system. There are many companies like Lendoit, Jibrel Network and SALT Lending that have started to develop a blockchain-based peer-to-peer lending platform.
Now, the question is how blockchain will reconstruct the peer-to-peer lending and what will be the benefits.
We all are aware that applying for credit or loans take weeks or sometimes months and the rate of interest varies around the world. So, to overcome this problem, blockchain enables lenders and borrowers to connect without the involvement of third parties or intermediaries.
Here’s why the lending process should be done on the blockchain platform:
Different Rate of Interest:
Using smart contracts, the problem of varying rate of interests in different countries can be solved. The rates can be fixed on the basis of specific criteria like creditworthiness of the borrower.
Time and Cost Reduction:
By adding all the regulations to smart contracts and connecting the lenders and borrowers, blockchain lending can reduce time and cost respectively.
Stakeholders that can be involved in the p2p lending platform on the blockchain:
Who borrows the money with the intention of returning it to the lender in installments.
Who lends money to the borrower.
Who takes the guarantee of a borrower.
How can Blockchain Lending work?
First of all, a lender creates a profile with information such as name, address, government-issued ID number, wallet address, type of investment they want and criteria for different types of borrowers they want to set.
Similarly, borrower creates an account with the personal information, collaterals and guarantor’s information. Once their profiles are created, they can find each other on the lending platform.
Now, borrower sends a loan request. With smart contracts, their request is sent to the lender who is interested in the type of investment borrowers need.
After the lenders receive the request, they schedule an interview with the borrower to know why do they want a loan, what is their monthly earning, how much they can repay lenders in a month and how many times they have applied for the loan in history.
On the basis of the interview with the borrower, lenders can either approve or reject their request.
As soon as the request is approved, smart contracts can decide the rate of interest for a specific borrower by checking their creditworthiness.
The amount of money required by the borrower is transferred to the borrower’s wallet automatically with smart contracts. Also, the repay money is sent to lenders from the borrower’s wallet.
Blockchain lending can help make quick approvals, reduce delays and eliminate the need for intermediaries or middlemen.
If you are looking to build a peer-to-peer lending platform on the blockchain, ensure to look out for the leading blockchain development company.