With the advancement in technology, the financial sector is changing very fast. One such latest technological advancement in the field of finance is the P2P lending. Although it is a large industry in the developed countries, p2p lending is still in its nascent stages in India. P2P lending is an online platform for borrowers and lenders. Peer to peer platforms carry their due diligence after which interest rate is fixed for lenders to lend and borrowers to borrow.
In 2017, the central bank of India, RBI, came out with guidelines to govern the Peer to peer lending sector after which peer to peer lending platforms became a new class of NBFCs (“NBFC – P2P”).
You can take a personal loan or a business loan from P2P lending platforms without any collateral.
Many peer to peer lending platforms offer lesser interest rate than established institutions as they do not have the cost associated with branch networks.
Loan application on P2P platforms is an easy and smooth process. All you have to do to upload a few basic documents for your KYC and credit assessment.
It is hard for people to get a loan approved without credit history. However, with P2P lending, you will be eligible to get loans based on your profile.
CIBIL score matters a lot when it comes to taking loans. However, many times CIBIL may not paint a correct picture of the credit worthiness of the individual. P2P platforms also provide loans to individuals with low CIBIL score.
In p2p lending, a borrower can receive funds from various lenders. Here many lenders go through the profile of borrowers before lending. As a result, the chances of getting your loan funded increases.
As business owners do not have a regular source of income, many banks reject their loan application. P2P lending platforms also have loans specially catering to business people.
Peer to peer lending platform is not just for borrowing, you can invest in P2P platforms as well.
You can earn high returns from Peer to peer lending right from the first month. As the interest rates are based on the credit worthiness of the borrower, you can end up earning high interest rate if you lend to high risk borrowers. The returns come in the form of EMIs and hence you get a monthly cashflow.
You can also build a passive source of income by investing in P2P lending. There are auto investment tool in many P2P platforms that will help you to find potential borrowers automatically which will ensure that your money is working hard for you and you reap the benefits of compounding.
You can lend money towards loans that suits your time horizon. In P2P lending, loans mature between 3 months to 3 years and hence you can choose your frame accordingly.
Diversification minimises the risk in your portfolio. You diversify your portfolio by investing in P2P lending. You can also lower the risk in P2P lending by lending to different types of borrowers such as people opting for marriage loan, education loan etc.
P2P lending just like any other investment avenues comes with a range of different risk profile. Some are risky loans while others are safe loans. If you like playing it safe then you can lend to the safer borrowers and if you are chasing high returns, high risk borrowers may be good for you. It all depends on your risk taking capabilities.
The returns or the rate of interest from P2P lending platform is not linked to the markets. The returns is linked to your borrower while in case of other investment options it is related to global volatility, corporate earnings etc. You can continue to earn returns even though there may be negative market sentiments.
To summarise, peer to peer lending is slowly gaining momentum in India. It is a new approach to borrow and lend money. However, there are certain rules and regulations that are in place. E.g. an investor can not borrow more than Rs.10 lakh across all the P2P platforms. Some peer to peer platforms also have their minimum loan application and minimum salary for salaried people. So you need to know some of the basic prerequisites before you apply or lend a loan.
