There are several methods to raise or borrow money. Crowdfunding and P2P lending are two popular avenues changing the way money is raised. Both these methods involve people helping each other get the funds required. However, both of them have their own features and purposes. In this brief guide, let’s understand what is crowdfunding and P2P lending, and understand the aspects of crowdfunding vs P2P lending.
What is Crowdfunding?
Crowdfunding is all about raising funds with the help of a crowd. Here, you raise money by asking multiple people to contribute a small amount. This is usually done online through crowdfunding websites. People use crowdfunding to get funds for new projects, ideas and charitable causes. There are numerous crowdfunding platforms like Kickstarter or KETTO where people donate money.
How Crowdfunding Works
Crowdfunding works in a very simple manner. Here are the major steps involved in the crowdfunding process:
Start a Campaign
The first is always creating a campaign on a crowdfunding website. Here, you tell people about your project, how much money you need, and what the money would be used for.
Share Your Campaign
Next, you promote your campaign on social media, through emails, and other ways to get people interested and encourage them to donate.
Collect Donations
Now when people see your campaign and decide they want to help, they contribute money. So, the next step is to collect all the donations.
Use the Funds
Once you reach your fundraising goal and have collected donations, you can use the funds for your project.
What is P2P Lending?
P2P lending, otherwise called peer-to-peer lending, is a way to borrow and lend money directly between people without the involvement of a bank. You download a P2P lending app, create an account, and then choose to lend or borrow money.
If you wish to borrow money for your personal requirements, you would need to list your loan request on the app. Lenders then review your request and decide if they want to lend you the money.
How P2P Lending Works
Here’s how P2P lending works:
Step 1: Apply for a Loan
You fill out an application on a P2P lending website and provide details about why you need the money and how much you want to borrow.
Step 2: Loan Request Is Listed
Your loan request is listed on the platform so that lenders can see it.
Step 3: Receive Funds
Once lenders choose to fund your loan, either fully or in part, you get the money in your account.
Step 4: Repay the Loan
You repay the loan in regular payments including interest.
Also Read : P2P Lending – The Future of Borrowing and Investing
Crowdfunding Vs P2P Lending: Major Differences
Here’s a table to understand the differences between crowdfunding and P2P lending:
| Aspect(₹) | Crowdfunding | P2P Lending |
|---|---|---|
| Purpose | Used to raise money for ideas, projects, or causes by getting support from many people. | A way to borrow and lend money directly without any involvement of banks. |
| ROI (Return on Investment) | You usually don’t get money but can earn rewards or feel good about helping. | Lenders earn interest on the money they lend. |
| Funding Method | A lot of people contributing small amounts. | Involves loans where lenders give money to borrowers. |
| Risk | Not reaching the fundraising goal. | Borrowers defaulting on loans. |
Conclusion
This is how crowdfunding and P2P lending work. While crowdfunding is great for bringing causes to life by gathering small contributions from many people, P2P lending offers a way to get loans directly from individuals. If you also wish to invest in P2P-enabled investment plans, then download the 13Karat app right away. Here, investors can invest in 13Karat’s 6-month plan and 3-month investment plans offering returns of up to 13% and 12% per annum respectively.
