There are many types of loans that you can take; regular loans which are given by banks or lending institutions, and P2P loans.
If you have never come across the term ‘peer to peer lending’, this article will tell you all there is to know about them.
Peer to peer lending or ‘P2P loans’ refers to lending money or taking loans directly from other individuals instead of banks or traditional lenders. It is also known as crowd lending or social lending and it is seen as an alternative method of procuring funds.
The P2P loans may or may not have a middleman involved in the process, but most P2P lending platforms act as a mediator between the investor and the borrower.
Now that you know what P2P loans are, let’s try to understand peer to peer lending meaning in detail and how it works.
Suppose Sushil is looking for a loan but doesn’t want to take the loan from a bank for multiple reasons. His reasons may vary from the need for excessive documentation, not matching the eligibility criteria, or simply that Sushil requires the money for a very short term.
Thus he decides to approach the alternative lending method of P2P personal loans. He signs up on one of the many P2P lending platforms in India and specifies his requirements.
On the other hand, Nitu wants to invest her money and is interested in the concept of P2P lending. She signs up on the same P2P lending platform and puts her extra money on the platform.
When borrowers like Sushil will come looking for loans, the P2P lending platform will use the money invested by Nitu and others, to fund the borrowers. But, all of Nitu’s money will not be given to one borrower like Sushil. Her money will be divided into smaller parts and distributed among many borrowers to reduce her risk.
Most popular P2P lending platforms give a fixed rate of interest to the investors, but the rate of interest the borrowers pay depends on their credibility. This is how the process of P2P loans work.
If you are searching for the ‘best P2P lending India’ to either invest your extra money or take a loan, this section will help you out. Here are a few of the P2P lending platforms in India -
It has been operating as an alternative investment option since 2015 and has over 85 Lakh users across India. To date, they have disbursed up to 2.5 Crores as loans.
i2i Funding or RNVP Technology Pvt. Ltd. has been operating since 2015 and is registered under RBI as a NBFC Peer to Peer Lending Platform. Their P2P personal loan interest rates start from 12% and investors can get returns up to 36%.
Faircent was founded in the year 2013 and it is registered as an NBFC-P2P under the RBI. In this platform, borrowers can expect loans at 12%-28% interest rates, depending on their creditworthiness and requirement.
The returns that the investors get will depend on the plan they choose and the duration for which they invest their money.
Founded in 2015, this is one of the P2P lending platforms that is very popular. Investors need to make a minimum investment of Rs.10,000 and they get returns of up to 14%. As a borrower, since your loan will be coming from various investors, the interest rate will depend on the average of the individual loan parts.
Finzy was founded in 2017 and is one of the popular P2P lending platforms in India. Here borrowers can get loans at interest rates starting from 10.99%. Since its inception, Finzy has been delivering returns of over 10% to its investors, consistently.
After answering the question ‘what is peer to peer lending’, the next thing that comes to mind is how safe it is.
Peer to peer lending is a valid form of lending and the lending platforms are authorized by RBI. But then it comes with its advantages and disadvantages. Let us try to gauge how safe is peer to peer lending in India -
It is very helpful for investors who want to get higher returns
It is also beneficial for borrowers who want quick funds and want it for a short period of time
The major risk associated with P2P lending is that the default rate is higher than traditional lending
If a borrower defaults, some P2P lending platforms will help you recover the money or file suits, but sometimes investors might just lose their money
Due to this, it is risky for investors, but then the high returns might balance out the risk involved
Investors can minimize their risk by lending their money only to borrowers with high creditworthiness, but even this won’t eliminate the risk totally
Peer to peer lending sites are a great way to invest your money to get high returns or borrow money for short time periods.
But it does come with its own disadvantages. With a high return rate, your money is also at high risk. Similarly, borrowers have to pay much higher interest rates as compared to traditional lending.
The process of borrowing from or investing in P2P lending platforms is very simple, but you must read all the terms and conditions before you make a decision.
In case you are looking for a quick personal loan for a short duration, you can also consider instant personal loans from moneyview. Here you can get personal loans from Rs.5,000 to Rs.10 Lakh, and the tenure can be between 3 months to 5 years, based on your requirement and eligibility.
To know more, download the moneyview app or visit our website.
Yes, peer to peer lending is completely legal in India. In fact, the P2P lending platforms are also registered as NBFC-P2P with the Reserve Bank of India.
P2P lending benefits both the investor and the borrower. Investors get high returns on their money, with short lock-in periods. Borrowers get instant loans for short terms depending on their requirements.
Peer to peer lending is somewhat risky for investors as the risk of a borrower defaulting cannot be ruled out. In extreme cases, there is a chance of losing the money you invested.
No, P2P is not tax free in India. Returns earned from investing ins P2P lending platforms are taxable under ‘Income from Other Sources’.
There are many P2P lending platforms in India like Lenden Club, Faircent, Finzy, Lendbox, i2i Funding, etc.
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