Blog Loan originator What is a loan originator and why are they transforming the P2P lending industry?

What is a loan originator and why are they transforming the P2P lending industry?

date July 3, 2020 time 3 min read

For years most international investments and their high returns have been limited to wealthy accredited investors. However, in just the past few years the global economy has opened up to the average investor with the rise of the online loan originator.

These lucrative and diverse investment options have transformed the peer-to-peer lending industry in just a few short years. Through loan originator features like the one we just launched, investors like you are already making up to 11% APR from 1000’s of individual and small-business borrowers around the world.

We want to give you a brief overview of just what is a loan originator and why they could be the change the lending industry has long needed.

What does a loan originator do?

Put simply, a loan originator (sometimes called a mortgage originator) is someone who can give you a loan.

In the traditional sense, a loan originator is usually a bank or other entity with access to large amounts of capital. A loan originator usually does all of the following,

  • Sources funds for loans.
  • Markets their services to borrowers.
  • Assesses borrower trustworthiness (usually via credit score).
  • Secures collateral and ensures that borrowers repay on time.

Loan origination has traditionally only been available to a small group of businesses with large amounts of capital. That means until recently, the top loan originators have been banks and credit unions. But with the rise of online lending pooling individual resources and better collateral options, things are changing.

What is a loan originator in P2P lending?

In traditional P2P lending through sites like Lending Club or Prosper, one platform facilitates lending between active lenders and borrowers. However, this means P2P platforms source users and run marketing for both investors and borrowers. This can ultimately limit the number and quality of customers on both ends.

In P2P loan origination, the three-party system transforms into four. One platform, usually the P2P platform, becomes a master hub for investors in capital-rich regions who want better options for investment. The P2P platform sources small fourth-party loan origination partners in different parts of the world for borrowers. These partners are usually much better at meeting the needs of local markets they work in and can ensure a steady stream of high-quality loans for investors. They often operate in regions with high growth potential but a lack of capital due to fewer financial institutions like banks.

For example, we at MyConstant work with platforms like Cubefunder, a small and medium business lender in the UK. Their founder noticed there were few banks giving small business loans in the UK. Having worked in the lending industry, he knew which businesses really needed loans and could afford to repay. However, he needed investment capital. Cubefunder now works with a couple major P2P platforms to generate loans for the little guys who were overlooked by major originators.

The loan originator model creates a win-win for all parties involved.

Investors get:

  • A diverse range of investment options around the world.
  • Competitive and steady interest rates.
  • Better risk assessment than on traditional P2P platforms.

Borrowers get:

  • Steady and reliable loans to help build their lives even if they lack traditional lending infrastructure.

But this probably makes you wonder about the classic conflict in P2P lending: What does a loan originator do to make sure investors don’t give their money to fraudulent borrowers?

Buyback guarantees

A buyback guarantee is an agreement from a loan originator that they will repay investors who lose principal due to borrower default. While this can seem like one person’s word against another, reputation is everything in the lending world. An originator with a bad reputation will have to provide very high interest rates if they want to attract investment platforms.

The top loan originators today really believe they are providing a profitable service to their community. They’re usually more than willing to put their money where their mouth is to make sure they can keep providing their service.

On platforms like MyConstant, we work with the loan originators around the world and give them a rating based on their trustworthiness. The lower the rating, the higher the risk and interest rate you can earn. As with any investment, you should make sure you research the originators you invest in and remember to diversify your holdings. We hope this has helped you understand what is a loan originator and why people are excited about this new addition to the P2P industry.


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Peter Upton

Peter Upton

Community Manager

Tags: p2p lending what is a loan originator what does a loan originator do? top loan originators loan originator p2p loan originator

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