You must have heard about P2P lending before. It has taken the internet by storm.
Have you ever thought, why is it so?
Why have so many people recently appeared to get a bridging loan on a P2P lending platform?
How come the lending process is so simplified and streamlined? These and many other questions intrigue your mind.
To solve this mystery, you must know the term loan originators because they are responsible for some of the best deals in the P2P market.
If you want to explore further, then read this article. It contains some new insights into the role of loan originators, the business rationale behind it, and the benefits they provide to the ecosystem.
Loan Originator and P2P Lending:
Before, you thought the P2P platform connected lenders with borrowers directly without any intermediary.
That is true, but the websites need someone to bring borrowers to their platform. They need to keep their loan marketing top-notch to attract borrowers.
So, the guy or the entity that takes care of the demand side of loans is called the loan originator. They initiate the sale tactics to lure borrowers and facilitate their loan applications.
While reading it, you aren’t mistaken if you think of a mortgage broker.
Both resemble alot, and the only difference is that a loan originator is connected to a P2P lending platform.
Does Alternative Finance need Loan Originators?
It seems a very important question. Why would a P2P platform need the services of another entity to promote its business?
The answer is: Most borrowers aren’t aware of financial jargon, and sometimes they aren’t aware of the product.
So, there must be someone to let them know everything they want. Loan originators use marketing techniques that interest the borrowers.
Once they feel they need a loan, they need help finding the type that suits their needs.
For that matter, a loan originator can help them understand what they need. People still need to be convinced about the integrity of these platforms, partly because they hear some bad news about P2P lending.
Therefore, alternative finance would need loan originators to sign up for the platform and create demand.
The Business Model of P2P Lending with Loan Originator:
The business model of P2P lending is fairly straightforward. However, when we add the loan originator into the system, we add a new layer to the model.
Picture this:
The traditional business model works by connecting lenders and borrowers. The supply of lenders and the demand for loans come through the platform. That means the website takes care of the marketing on both sides.
Yet, in the case of the loan originator model, the demand side is taken care of by a different entity.
So, the model now contains four elements.
The lenders, borrowers, platform, and loan originator complete the four sides of a square. In this way, the demand for loans comes more frequently.
To demonstrate, the loan originator brings steady customers to the platform and even scans or filters out better borrowers for the ecosystem.
You may argue that adding an extra layer will only increase the red tape and the time to lend money and makes the lending process opaque for the investors.
Though it may be true, it helps the website focus on more important issues, not caring much about the perfect demand side.
Also, P2P platforms may find it costly to hire credit checkers and marketers themselves.
So, in this model, they contract people who can lend out those services to you.
That’s how the originator model works.
Benefits of Loan Originators for Investors and Borrowers:
There are some advantages of loan originators, so you may need to know them if you are going to get a loan.
Diversity of Loans:
The platforms having loan originators as their loan-providing partners often have more variety of loans compared to traditional ones.
The reason is that they get many types of borrowers on their platform, so to meet the demand, they seek different investors.
To maintain it, they offer various loan types, such as bridging loans, development finance, etc.
Therefore, you can see different finance options that meet your need and can invest in many to diversify your portfolio.
Buyback Guarantee:
P2P lending is riskier but can be made less risky due to some guarantees. That makes loan originator P2P lending more secure.
As the investors don’t know what those lenders are, they may fear losing their money. So, the website asks the loan originator to provide some guarantee in the form of a buyback.
It entails that the loan originator will buy all the interest plus the principal amount if the borrowers fail to repay or take more time.
Final Words:
There are many business models in the P2P lending market. However, taking a loan with a loan originator remains the most popular.
While it may have some cons, it provides significant advantages to borrowers and lenders alike.
In this article, we provided an overview of the working of loan originators for a P2P lending website. If you have read the article thoroughly, kindly let us know your feedback on this article.
