Peer-to-peer lending, often abbreviated as P2P lending and also known as crowdfunding, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. In simple terms, it is matching people who want to invest with people who want to borrow.
Peer-to-peer lending companies like Lendy tend to operate online, which means they can run their operations with lower overheads and provide lending services more cheaply than traditional financial institutions, by effectively cutting out the middle man.
As a result, lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates. The P2P lending company makes it money from taking a fee for providing the match-making platform and sourcing the investment opportunities. As with all types of investing there is the risk of the borrower defaulting on the loans they've entered into.
Compared to stock markets, peer-to-peer lending tends to have less volatility.