View source for Person-to-person guaranteeing

'''Person-to-Person Guaranteeing''' (P2P Guaranteeing) is the process by which people are able to facilitate the lending process by providing the [[guarantee]] or [[Collateral_(finance)|collateral]] for a [[loan]] to be taken out. In the case of a [[borrower]] in such a position that there is insufficient funds for even the loan collateral, banks will not lend because of the inherent riskiness associated with such a loan. Therefore, it would be necessary for the borrower to obtain the funds from outside sources. By engaging in P2P Guaranteeing a third party steps in and provides the necessary [[risk_capital|risk capital]] by guaranteeing the loan, thereby reducing the bank's risk and enabling them to make a loan that they would not have otherwise made.

==Advantages==
===Impact===
In the P2P Guaranteeing model the impact of every dollar has a doubling effect of sorts. The amount of [[Capital_(economics)|capital]] required of person A in order for person B to obtain a loan is less than the full loan amount, as person A is only supplying the collateral to free up the loan rather than the loan itself. Therefore, a $100 loan might require $20 in guarantee capital (20% of the loan amount).

===Lower Foreign Exchange Rate Risk===
With P2P guaranteeing transactions are done solely in the local currency, between the local bank and the borrower. Money does not exchange hands when one agrees to become a guarantor since a guarantee is only an agreement to take on debt should the borrower [[Default_(finance)|default]]. The only time money crosses borders with P2P guaranteeing is in the event of a default. Therefore, the risk of loss associated with fluctuations in the [[Foreign exchange rate]] is greatly diminished.

===Lower Interest Rates===
Guaranteeing a loan increases confidence that the loan will be repaid and it reduces the risk faced by the bank. As a result of reduced risk the cost to borrowing becomes less, which translates to a lower [[interest rate]] charged by the bank to the borrower.

==Pioneer==
[[United_prosperity|United Prosperity]], a California-based non profit is considered to be "the world's first person-to-person loan guaranteeing website".<ref>[http://www.alliancemagazine.org/node/2288 Alliance Magazine], World's first P2P loan guarantee website enters the field.</ref>


==References==
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