WHAT IS PEER-TO-PEER (P2P) FINANCING?

In today’s times, there are oodles of ways a person can meet his immediate financial needs including Re-mortgaging one’s house, personal loans, loans on assets, etc. P2P finance happens to be one of the options from which an individual can raise funds to meet his personal/business needs.

PICTURE CREDITS: AB ACCELERATOR

WHAT IS P2P FINANCING?

To put it in simple terms, it means allowing individuals to obtain loans from other individuals and cutting out financial institutions. P2P financing is mostly done through apps and websites. It is also called social lending and is also advantageous to the lenders, allowing them to diversify their investment portfolios along with giving them an additional income source.

ADVANTAGES OF P2P LENDING FOR THE BORROWERS

  • One of the main problems faced by individuals to obtain a personal loan is their low/poor CIBIL score. With P2P financing even individuals with poor CIBIL scores can raise funds for their personal purpose. This allows funds to be allocated to individuals who want to use it for their personal projects and small businesses which might not be possible with financial institutions that have strict norms for lending funds.
  • P2P platforms can be used for any purpose, even for funding your own vacations! This is one of the main advantages of P2P lending it can be used for any purpose, and the borrower can also borrow the money he needs (there is on most platforms at least, no minimum loan amount)
  • Faster loan disbursement time is another main advantage since there is no involvement of banks the approval times are reduced by a huge margin, which makes the disbursement of the loans a lot faster.
  • The whole process of obtaining the loan is paperless, which makes it more convenient for the borrower and less time-consuming.

ADVANTAGES TO THE LENDERS

  • Monthly income source for the lender through EMIs he receives from the borrower.
  • P2P allows an investor to create a diversified portfolio, saving the investor from volatility issues that he may face investing in stock markets or even interest rate fluctuations in the economy.
  • Most of the platforms available today pre-verifies the borrowers through credit evaluation algorithms that check various parameters to ensure that a genuine borrower receives the fund

AVERAGE INTEREST RATE PAYABLE FOR A P2P BORROWER

Generally, interest rates start from 10–12% for a borrower going upwards up to 20+%

REGULATIONS WITH RESPECT TO P2P FINANCE

All P2P platforms are under the purview of RBI and require an NBFC P2P license to operate. No borrower can borrow an amount greater than Rs 1000000 and cannot avail of a loan with tenure greater than 36 months. The loans cannot be disbursed without the approval of the lender with respect to the borrowing party and all the parties must sign the loan contract.

SOME POPULAR P2P PLATFORMS

  • Lendbox: It is a registered P2P platform where borrowers can avail of loans with interest rates ranging from 16–28%, the maximum loan amount that an individual can avail of is Rs 5,00,000.
  • Faircent: It is a registered P2P platform where borrowers can avail of loans with interest rates ranging from 12–28%, the lenders are generally High Networth Individuals who have good financial wherewithals.
  • LenDenClub Personal Loan: It is a registered P2P platform where borrowers can avail of loans with interest rates ranging from 6.5–20.95%.
  • OML Smart Financing, better known as OMLP2P: The interest rate here ranges from 9.49–36% pa. And the loan can be availed in multiples of Rs 5000.

Hopefully, you found this concept as enthralling as I did. For suggesting topics and sharing thoughts, use the comment section or email me at abhishekrnayanar171201@gmail.com.

FOR MORE ARTICLES, VISIT: https://medium.com/@abhishekrnayanar171201

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