To understand the term, it is necessary to explain each member of which it consists; crowd = crowd, lending = borrowing money. Crowdlending allows entities to fund different types of projects through a large and diverse group of funders without the need for a bank. This concept is therefore different from borrowing from a bank or lending money by individuals. In a way, the whole endeavour is similar to crowdfunding. The results of this approach are very attractive for investors, who can achieve higher rates of return, and for borrowers, who can borrow at lower interest rates.
The benefits of crowdlending
The crowdlending platforms are designed to make things simpler and safer. Modern credit scoring systems use technology such as artificial intelligence to avoid problems before they occur in a fairly precise way. The better your creditworthiness, the lower the interest rate you may be offered. However, this works both ways. If an investor is prepared to risk a little more, they stand a chance of higher returns. The advantages of crowdlending are not only for lenders, due to the fact that it is a modern form of investment that allows them to invest online with just a few clicks and earn interest. In most cases, the minimum investment amounts are very low, allowing the money to be spread over many different loans. The advantages of crowdlending are mainly spoken about in the borrowers, who can start their projects, grow and diversify the market despite a small budget. For borrowers, applying for a bank loan is unfortunately often associated with all sorts of obstacles and a lot of effort. Not everyone also meets the formal requirements, and Crowdlending is therefore a good way to obtain financing without unnecessary complications.
Will crowdlending be the decentralisation of finance?
When considering what crowdlending is and its predisposition to develop in the future, we very often see it as the next step towards the decentralisation of finance. Crowdlending takes place via online platforms. Importantly, unlike crowdfunding, there is no acquisition of ownership. Blockchain is now everywhere and more and more people seem to understand the concept of platforms that do not rely on just one point where everything is done. The same applies to lending and investment. With crowdfunding and peer-to-peer lending, everyone can make more money: by individuals and small companies alike, who would otherwise not be able to find investors. Crowdlending keeps the boundaries even further, decentralising every investment.