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Peer-to-peer lending is also called P2P lending in which money is lent to a person or business through online services. This process connects lenders and borrowers in one platform. This service is cheaper than banks and other financial institutes. Here lenders get maximum returns and borrowers can borrow money at the lowest interest rates. On that note, let’s move ahead and understand what is P2P lending, P2P lending platforms in India and know how safe it is.
What is peer-to-peer lending
In today’s scenario, most people prefer to take loans from financial banks and other non-financial institutions as they are more reliable. But in many cases, these banks and financial institutes reject their loan application due to employment, income, paperwork, etc. So, to avoid this situation peer-to-peer lending came into existence.
Peer-to-peer lending process is done by two parties, the lender (who gives money) and the borrowers (who takes money). Lenders lend money only after receiving all the information about the borrower. Let’s move ahead and explore more about these lending platforms in India.
Peer-to-peer lending platform in India
The peer-to-peer lending process is a digital lending solutions, where all these activities occur between two parties online. So, let’s see how this platform works in India. Under this platform, lending is done through a website or online portal that directly connects borrowers and lenders, and those who want to borrow money can register their names as borrowers.
This platform takes into account the following aspects as eligibility criteria:
- History of their credits
Apart from this information, the platform also get insights of borrowers’ daily updates and activities through their social media accounts. This information is assessed, and the borrowers’ risk bucket and interest rate are determined. The better the borrower’s creditworthiness, the less interest he will have to pay and vice-versa. Lenders personally verify the information evaluated by the platform and then decide which borrower they wish to lend money to.
Regarding payment, the P2P lending platform does not keep any margin or installment between both parties but charges fees from them.
Top 5 peer-to-peer lending platforms
Here is the top 5 peer-to-peer lending platforms in India
LenDenClub was founded by Bhavin Patel in 2014, one of India’s fastest-growing P2P lending platforms. It serves more than 1 million customers with more than 19,000 pincodes. The platform aims to expand its reach across India and increase financial inclusion through the digital lending app InstaMoney.
With over 200,000 borrowers as of the end of FY21, Faircent is the first P2P lender in India to receive an NBFC-P2P license from the Reserve Bank of India (RBI). Rajat Gandhi and their partners Vinay Mathews and Nitin Gupta founded Faircent in 2013. Faircent aims to reduce the impact on lenders affected by the pandemic through new credit insights such as foreclosure prevention loans.
Lendbox, another popular P2P lending platform, has over 50,000 investors and 540,000 borrowers. Lendbox was founded in 2015 by Ekmmeet Singh, Bhuvan Rustagi and Jatin Malwal. Lendbox investors earn up to 16% annual returns by lending to multiple borrowers. It aims to eliminate intermediaries in lending and expand financial inclusion to more borrowers through technology.
Lendingkart was founded in 2014 by former banker Harshvardhan Lunia to support India’s SME market. Since its founding, it has helped over 90,000 small businesses in 1,300 cities. The company uses credit evaluation algorithms to identify its borrowers and help find the best candidate.
Abhinandan Sangam and their copartners wanted to create a platform that would support risk-adjusted investments and hence founded Finzy in 2016. Thanks to this work, they found Finzy. It allows investors to earn returns from 7.99% to 27.99%, depending on their risk appetite. Investors use the most advanced solutions available on the platform, such as finzyPRO+, finzyBolt and Reinvest-Pro, to reduce risk while increasing returns.
Is peer-to-peer lending safe?
The most crucial factor in P2P lending for investors is trust. Naturally, there is some risk in every investment. But the risk can be reduced by making the right decisions. For this, let’s clear that P2P lending is legal in India and is entirely regulated by RBI. And some criteria have been given by RBI due to which peer-to-peer lending can said to be safe. The following points ensure P2P lending safe:
- RBI Prudential norms: RBI has notified some essential norms like-
- Licencing requirements for P2P platforms (NBFC P2P)
- Minimum capital and securities management for P2P platforms
- Multiple need risk: A single loan can be at most Rs. 50,000. LenDenClub understands investors’ concerns – the minimum investment is Rs 500. 2,000 per borrower on the site, you can easily benefit from the maximum risk of the platform provided.
- Borrowers can borrow up to ₹2,000-₹50 lakhs across all P2P platforms.
- Loan terms vary between 3 and 36 months.
- Lender’s internal evaluation: P2P platforms use their criteria to evaluate borrowers. In addition to credit reports and history, they check employment status, income level and regularity. Some previous limitations were also analysed from more than 200 data points.
- It can reduce risk by investing in P2P platforms. They have a strong credit score and experience in this field. So, invest in India’s best P2P lending platform in 2022 and reduce your investment worries.
Peer-to-peer lending platform for Investor
An investor needs to know which P2P lending platform to choose. An investor should have all the information about P2P lending. So let us know how Peer-to-Peer lending works for the investor.
- Monthly pay-
In this P2P lending, investors are given monthly payments when the borrowers repay their loans. Investors can decide what type of loan they will fund, which depends on credit score, debts, etc. Some unique platforms provide technology to automate this process so that investors can create their guidelines and terms and follow them.
- Loan diversification-
Investors can fund the entire loan or purchase bonds in $25 increments to spread risk across several loans.
- No FDIC Protection –
The FDIC does not compensate investors when the P2P platform fails and does not cover investor losses if the borrower defaults. Some venues have agreements with other platforms to manage credit information if they do not work, but there is no guarantee.
- Less Capital-
The maturity amount and interest on the loan are charged together. This is entirely different from a traditional security in which the total capital amount is received at the end of the terms. This allows investors to separate principal and interest while paying or reinvesting the proceeds.