Peer-to-peer lending or P2P lending is a monetary arrangement between two parties sans the involvement of financial institutions like banks. The borrowers who are seeking unsecured personal or business loans, and the investors who want to earn higher returns on the money they lend. P2P platforms enable a transaction where both sides benefit from the setup while the company acts as an intermediary or a risk mitigator in these digital and paperless transactions.
Peer-to-peer lending began as an alternative to traditional financing options. However, with the deployment of advanced technologies and systems, P2P platforms are more than that today. They are revolutionizing the financing space with quick loan disbursals along with emerging as an alternative asset class with impressive returns. Rapid digitalization has paved the way for the scope of growth of the market.
These platforms enable small and medium-sized enterprises (SMEs) to grow by providing them with financing alternatives with minimal fees and convenient repayment options. The pandemic has further popularized the platforms because of their ability to disburse loans completely digitally, without the need for any physical visits, which is tough to attain with the traditional financing setups. The development of blockchain, smart contracts and the introduction of government regulations are acting as catalysts in building trust in these systems, with P2P platforms providing transparency and reliable lending and borrowing facilities.
Here’s a simple guide on how to borrow and lend money on P2P platforms:
Borrowing money from a P2P platform
- There are a lot of platforms in India that offer loans online, but you don’t have to go for the very first platform you see. Do your research about the platform, its eligibility criteria, interest rates, etc.
- The borrowers can apply for a loan up to Rs 10,00,000 on P2P platforms.
- One should look out for the transparency of the company, size of the platform, processing fee and repayment options.
- As one begins a sign-up process on any platform, they should make sure they have certain documents in hand for uploading like Aadhar, PAN card, etc.
- After the platform has verified the loan seeker’s information and checked their credit history, they will receive an intimation for the next steps.
- Apart from the CIBIL score, platforms also use different parameters like ability, stability, past performance and intention of the borrowers, which are evaluated on the basis of documents like salary slips, bank statements, ITRs, balance sheets etc.
- After verification from the company, the credit appraisal mechanism sets the parameters for the loan – loan amount, rate of interest and loan tenure.
- After the borrower accepts the same, the loan is disbursed within 48-72 hours after their first log-in on the website.
Lending on a P2P platform
- Any individual, firm, HUF society or artificial body with a valid bank account and PAN card can lend on a P2P platform.
- Lenders can invest from Rs 500 to Rs 10-50 lakh on a P2P lending platform. However, those investing more than Rs 10 lakh must produce a certificate from a CA certifying their minimum net worth of Rs 50 lakh.
- Before putting their money on any platform, lenders should ensure it is registered as an NBFC and a P2P lender with the RBI.
- Lenders can choose a platform after undertaking their research on returns and risk mitigation provided by the platform.
- Later, they can register with bank details, PAN and KYC details and then deposit funds in the lender’s escrow account.
- Earlier, lenders could choose the people they wanted to lend the money to. But to make matters more convenient, now all they have to do is choose a plan in which they want to invest the money from their escrow account.
- There is a wide variety of plans available for short and long-term investments.
- The lender receives their principal amount and return on investment after their chosen tenure or the can choose to get timely payouts of returns through the tenure and receive the principal amount invested, at the end of it.
- The lender can choose to lock in their money for their desired tenure or they can choose a liquidity friendly plan and withdraw the money whenever they need to. P2P platforms provide customers with seamless and hassle-free lending and borrowing experience at a minimal price. Borrowers no longer have to wait in long queues or go back and forth with a pile of documents. On the other hand, lenders can grow their wealth easily by putting their money on P2P platforms. It is a win-win situation.
Views expressed above are the author’s own.
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