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Peer to peer lending, also known as P2P lending, is an alternate financing model that enables borrowers to get unsecured personal loans from individual lenders. Peer to peer lending platforms keep a list of verified borrowers, and the investors can see their details before lending them their corpus. Furthermore, investors also have the option of diversifying their investments, by lending relatively smaller amounts to various borrowers. The interest rates of such peer to peer loans are higher, as compared to banks and NBFCs.

Platforms Facilitating Peer-to-Peer Lending in India

The P2P lending sector in India has witnessed a high growth rate in the last few years. Some of the popular platforms that provide the Peer to Peer lending facility are:

  • Lendbox

  • Faircent

  • i2iFunding

  • OMLP2P

  • LenDenClub

  • i-Lend

Interest Rates & Processing Fees Charged by P2P Lending Platforms

Peer to Peer (P2P) lending is a high-risk form of lending as most of the borrowers on these P2P lending platforms are those who are not eligible for a loan offer from the formalised sector- banks and NBFCs. Therefore, the interest rates and the processing fees charged by these platforms are relatively higher. You may refer to the following table to get an idea of the interest rates and the processing fees charged by the Peer to Peer lending platforms:

P2P Lending Platform

Interest Rate

Processing Fee

Lendbox

12% onwards

2% to 6% depending upon the loan amount.

Faircent

9.99% onwards

2.5% to 8% depending upon the amount and the tenure of the loan.

i2iFunding

12% onwards

  • 3% to 6% for salaried borrowers.

  • 4% to 8% for self-employed borrowers.

OMLP2P

10.99% onwards

1% to 10% depending upon the amount and the tenure of the loan.

LenDenClub

6.5% onwards

  • ₹400 (plus GST) for loan amounts up to ₹10,000.

  • 4% for loan amounts greater than ₹10,000 (subject to a minimum of ₹2,000).

i-Lend

15% onwards

4% of the loan amount.

Disclaimer: The rates mentioned above are subject to constant change. You must always check with the lender before applying. Additionally, the final interest rate applicable to you will depend on factors such as your repayment tenure, your age, your monthly income, and your CIBIL score

Features of Peer-to-Peer Lending

Some of the key features of peer-to-peer lending on digital platforms are:

  • Online P2P lending platforms match verified borrowers with investors (lenders).

  • The borrower and the lender need not personally know each other. Everything is taken care of by the lending platform.

  • The minimum loan tenure is 3 months, while the maximum tenure is 36 months.

  • The lenders usually earn a high rate of interest on peer-to-peer loans. Many lenders use P2P lending as an investment strategy to earn higher rates of interest on their capital.

  • There is no involvement of any financial institution or an intermediary between the borrower and the lender, except the P2P lending platform.

Benefits of P2P Lending

Peer to peer lending provides numerous benefits to the investors, making it an attractive investment option. Some of the benefits are listed below.

  • Attractive Interest Rates: For the investors, peer to peer lending enables them to provide loans at higher interest rates on P2P platforms, making it an attractive investment option.

  • User-Friendly Experience: Considering the fact that the peer to peer lending system is operated on online portals, the application process is extremely convenient and quick. Furthermore, the lenders get access to the borrowers’ profiles, and they can choose the borrowers keeping in mind their personal information as disclosed by them on the platform.

  • Ideal for Borrowers with a Poor Credit History: P2P lending platforms can be a boon for borrowers who have a poor credit history and a low credit score. These borrowers are not eligible for loans from the formalised sector- banks/NBFCs. Peer-to-peer platforms can be really helpful for such borrowers.

  • No Security or Collateral Required: A peer-to-peer platform is an unsecured loan provider, and does not require the borrower to pledge any security or collateral.

How Does Peer-to-Peer Lending Work

While peer-to-peer lending is significantly different from lending from traditional financial institutions like banks and NBFCs, the working model of these P2P lending platforms is fairly simple. One can register on these P2P lending platforms as either a borrower or a lender (investor). If you register as an investor, you can invest your money on the platform and earn a fairly high interest rate on the invested capital.

The P2P platform then lends the money collected from the investors to the users who registered on the platform as borrowers. This is how the lending platform matches the borrowers with the investors and it is a win-win situation for both.

How to Get a Loan through Peer-to-Peer Lending System

To get a loan through the peer to peer lending system, one has to follow the following steps:

  • First, one has to register themselves as a borrower, which can be done by filling out the online form on the P2P platform.

  • The prospective borrower has to pay a one-time, non-refundable registration fee, which can range from ₹100 to ₹1,000.

  • They then have to upload scanned copies of their personal documents, such as PAN card, passport, driving licence etc., along with their salary slips for the previous 3-6 months if they are an employee, while other professionals have to submit a copy of their income tax returns.

  • Furthermore, certain platforms might require the borrower to divulge links to their social media accounts, such as LinkedIn, Twitter and Facebook, in order to evaluate their profile, job stability and social behaviour.

  • After registering on the platform, the P2P risk assessment team evaluates the borrower’s risk profile. If the borrower is deemed qualified for availing peer to peer loans, their profile is listed on the platform, along with their loan requirement.

Key Points to Check as a Borrower

  • Be Realistic: As a borrower, one shouldn’t overshoot, and should be realistic with their requirements. The lenders would carefully consider their debt-to-income ratio, along with their credit history and their income stream.

  • Be Thorough with the Registration and Application: It is important to proofread one’s application for a peer to peer loan, and ensure that the details being provided are accurate.

  • Ensure Your Credit Score Doesn’t Get Affected: The peer to peer platforms send the loan information to credit information bureaus. Thus, if the borrower defaults on peer to peer loans, it will affect their credit history and credit score, making it difficult to procure loans in the future.

Peer to peer lending is an alternate financing model that connects verified borrowers that require unsecured personal loans with investors who seek higher returns on their investments. The peer to peer lending industry is expected to grow into a US$5 billion industry by 2023.

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