Peer-to-peer lending platforms are basically Non-banking financial companies (NBFCs) which are under the regulation of the Reserve Bank of India (RBI). Here is a quick rundown on this alternative asset class offering attractive personal loan deals and investment option in debt products.
What is P2P lending?
P2P lending platforms follow a crowd-funding model (principally online credit marketplaces) where individual seeking loans can apply with institutional or individual lenders who wish to invest in this alternative asset class (largely debt instruments). The concept is balanced around investors getting a higher return on investment (ROI) by lending their money and borrowers getting fast and easy access to Personal Loans at comparatively lower interest rates.
Borrowers are either individuals or small businesses. But unlike a traditional savings account, one can lose money if the borrower defaults.
How Does it Work?
To get started the borrowers and lenders register themselves on the P2P Lending India platform. Theses Fintech companies then carries out the due diligence and those found eligible are allowed to participate.
1. P2P investment
You need to decide on how much you wish to lend, in what borrower risk category and for how long. Since you are funding the loans it is important to know the P2P loans are unsecured loans (Personal loans) of 1-3 years term. Some P2P lending platforms allow you to withdraw funds in the middle of the loan term, however, there may be a cost for doing this. Else, you need to wait until another lender come in and replace you.
- To earn average returns in the middle of 12% p.a. to 26% p.a.
- To diversify your funds into various risk categories
- To generate regular monthly returns
- You can reinvest your money to earn compounding benefits
- To earn more money in a short duration
- To retire rich!
2. To Apply for Personal Loan
You need to sign up as a borrower on the website. Borrowers can apply for various unsecured loans such as debt consolidation, home renovation, home improvement, Loan for Marriage and Loan for Business without Security etc. at interest rate comparatively lower than traditional financial institutions. It has become a popular alternative to traditional banking loans.
Features of P2P loans:
- The online Personal loan application process
- Competitive interest rates
- Flexible loan tenure
- Payback in EMIs
- Minimum documentation
- Disbursal directly into your bank account
- Low-cost loans
These platforms also provide several additional services like credit risk assessment, documentation, checks, soft recovery, portfolio management etc. In most cases, the platform controls the communication between the borrower and the lender.