Peer-to-peer lending has no intermediaries…
In P2P lending an individual lends money to another individual, without the help of a traditional financial intermediaries like Banks, under mutually agreed terms. In online P2P platforms an individual seeking a loan fills-in details and this request is matched with lenders possessing required funds. In essence, lenders get better returns and borrowers better rates.
If you have funds to spare and wish to earn higher returns than traditional investment options like fixed deposits or debt mutual funds, you may consider this route to park a part of your funds. Borrowers too will find this route a little flexible as compared to Banks who prefer to grant personal loans to applicants having higher incomes and/or are employed in large companies.
During October 2017, Reserve Bank of India (RBI) mandated that lenders can lend up to a total limit of Rs 10 Lakhs and similarly borrowers can borrow to a mximum extent of Rs 10 Lakhs on peer-to-peer platforms. Also P2P platforms on their own minimize the risk for investors by exhaustively verifying the credit-worthiness and eligibility of intending borrowers and displaying the information on the website, so that investors can take an informed decision based on their risk appetite. Obviously, the better the credit-worthiness the lower will be the interest rate and vice-versa.
Lending and borrowing on a peer-to-peer loan platform…
Every P2P platform has its own criteria for lenders and borrowers in respect of eligibility, minimum and maximum amounts, tenures etc. To begin with, they need to register on the websites by providing all required information. Anyone who is an Indian citizen and possesses a PAN card can become a lender. The lender’s profile is listed once the portal verifies it.
Borrowers must be Indian citizens with a PAN card and would be salaried employees, professionals or self-employed. The P2P platform lists the profile of borrowers after due verification of their personal, professional and financial details as well as credit history. The loan is processed after manual and/or algorithmic due-diligence and interest rate is based on the credit-worthiness of the borrower.
Investors can make offers (amount of loan, tenure and interest) to one or more listed borrowers and similarly borrowers can make offers to multiple lenders. Either side can accept or reject or negotiate offers. Once an offer is accepted by both sides, a contract is signed and loan is disbursed. The online platform’s fees are payable at this stage. The loan is repaid through EMIs via instruments like post-dated cheques, ECS etc. Non-payment on due dates invites penalties.