What is bitcoin peer-to-peer lending?
Bitcoin peer-to-peer lending is a service for those who would like to have access to loans but does not have the necessary credit history to apply through the traditional channels. The idea behind bitcoin peer-to-peer loans is to utilize the benefits of bitcoin and blockchain technology for lending opportunities. Bitcoin makes the lending service a more transparent and quicker solution compared to traditional methods.
The bitcoin lending platforms connect the individuals who are looking for borrowing money with those who wants to invest their bitcoin portfolio. The personal or business related bitcoin loans funded by individuals, not a single creditor agency. The platforms just work as an intermediare to connect investors with borrowers and facilitate the lending exercise.
The loans can be issued directly in bitcoins or in USD amounts where the originally issued amount is converted from bitcoin into USD. The bitcoin loans are highly customizable both in terms of maturity and the amount that can be borrowed. Specific payment terms can be negotiated with the creditors up on request including the treatment of late and delayed payments. The process involves an alternative credit check exercise at each platform. Instant loans are available for those who have been verified their identity on the lending sites.
Alternative credit check procedure at bitcoin lending platforms
The bitcoin lending platforms perform a credit check before approving the borrowing requests. However these credit checks are not based on the traditional credit score methods therefore bitcoins loans are suitable for those as well who does not have a credit history, both in terms of personally or business wise. A list of pre-requisities must be submitted before requesting a bitcoin loan that is used as alternative data to validated the creditibility of borrowers.
Bitcoin lending sites requests personal information such full name, date of birth and address. Documents needed to be uploaded in order to verify the given information on the platform. Sites usually request proof of address to be verified with a bill not older than 3 months. This is needed in order to make sure for the investors that the outstanding amount of money will be repaid, many people will take this into account when investing in bitcoin loans.
Besides providing personal information, platforms often requests borrowers to link as many social media accounts as a user can to validate their identity. The more social media accounts, such as Google+, Facebook, Twitter, Linkedin is given the better the chance you can borrow the required money.
For small businesses this process also includes transactions from accounts like eBay, Amazon, Etsy, MercadoLibre, Shopify, PayPal, bank accounts and many others. The submitted data is validated by the platform to verify identity and creditworthiness of the future borrower.
An important measure of borrowing bitcoin loans is the annual percentage rate (or APR) which is the amount of interest on total outstanding loan amount that you’ll pay annually. A lower APR means to lower monthly payments.
For investors, there are different types of accounts available at certain bitcoin peer-to-peer lending platforms. The bitcoin investment account is in place to fund bitcoin loans while the bitcoin savings account earns interest on the amount held on the account.
Advantages of bitcoin P2P loans
Bitcoin peer-to-peer loans have several advantages from both the borrower’s and the lender’s perspective.
Since the loans are based on reputation not on credit score , this opens the bitcoin lending market to those who are rejected from traditional lending methods. Bitcoin P2P lending is also a great solution to fund new business opportunities and the growth of online sellers. Anyone can get access to funds, even those who does not have proven credit record due to their age or due to the characteristics of the industry they work in.
Unlike traditional loans, the issuance of new credit lines happens instantenously. Once the borrower verified their identity on the lending platform, the new line of credits does not require a lenghty and time consuming approval process.
The amount of the loans is accessible within minutes from the submission of the requests due to the underlying blockchain technology.
The bitcoin loans can have tailormade terms and conditions, including the amount of the loan, the repayment terms, the interest payments and many more. All is just depending on negotiation between the borrower and the lender.
Those investors who are lending bitcoin can mitigare the price volatility of bitcoin if they are investing in USD denomitated loans while making sure they earn interest on the amount invested.
The amount of interest can be higher compared to traditional investment opportunities, although with a higher risk associated with it. On the otherhand, no verification is needed from the investor side when joining the pool of bitcoin loans with their funds.
Disadvantages of bitcoin P2P loans
From a lender perspective bitcoin P2P loans can have a high repayment risk. Investors have to trust the lending platform that the creditworthiness of the borrowers have been evaluated correctly.
As currently there is no regulation for the bitcoin lending industry, there is no guarantee that that invested amount will be recovered in case of a fraud or default.
From a borrower persperctive bitcoin P2P loans can have some challenges as well beside the obvious benefits. The given APRs can be higher compared to traditional bank loans.
The verification process involves providing personal details beyond the name and address. This means the social activity of the users are highly scutinized.
The terms and conditions of each loans must be carefully examined as it can have off-standard solutions both in terms of termanation and cancellation.
Top bitcoin P2P lending platforms
BTCPOP offers a unique peer to peer banking experience with the help of bitcoins loans. The amount available to borrow ranges from 0.01BTC up to 500BTC with an APR as low as 15%. The coins are stored in offline cold wallets to make sure they are kept securly.
The company is registered at Majuro, Marshall Islands. Further to lending services, BTCPOP also has an altcoin exchange where you can trade couple of altcoins against bitcoin.
Bitbond is a german P2P bitcoin lending and investment platform based in Berlin. They have originated over 1800 loans for users around the world from more than 120 countries in the amount of more than 2mln USD. The Bitbond loans have been desigend to benefit ebay sellers and online businesses.
Loans to grow your business is available from 7.7% APR up to an amount of 25000 USD with terms from 6 weeks to 3 years. For investors who want to diversify their portfolios, Bitbond offers a remarkable 13% interest if investing into the credit checked bitcoin loans. Autoinvestments is available at 0% fee.
Bitbond also provides a lot of free resources for online sellers that can boost their sales quickly.
Bit Lending Club has over 2000+ satisfied borrowers who have been funded almost 8 mln USD from 4700+ active investors. The platform provides loans to small businesses in the emerging markets at affordable rates.
The company is registered in Bulgaria and has been on the market since 2014. The Bit Lending Club fees are set based on the credit rating, starting at 1% for A-rated loans and increasing by 1% for each drop in credit rating, up to 5% for E rated loans.
Here are all the Bitcoin Lending Sites we currently know of: