What defines a peer-to-peer lending platform?

A peer-to-peer lending platform is characterized by its function as an online service that connects borrowers directly with individual lenders, bypassing traditional financial institutions like banks. This model allows individuals to lend money to other individuals or small businesses, fostering a community-driven approach to lending.

The rationale behind this system is that it can potentially offer lower interest rates for borrowers and higher returns for lenders compared to conventional banking. The platform typically manages the transactions, credit assessments, and other logistical aspects of lending while providing a space for risk assessment and monitoring for both parties involved.

Other options do not capture the essence of peer-to-peer lending; for example, a service that only gives loans to businesses restricts the scope of borrowing, while traditional banking services do not focus on the individual lender-borrower relationship facilitated by an online platform. Lastly, government financing programs typically involve established institutions and regulations, without the individual-level connection that defines peer-to-peer lending.