All About P2P Lending

 

In India, the concept of borrowing/lending money from and to friends or family is not something that is new. This has long been the traditional way of lending before the concept of secured loans via banks and other financial institutions came into the picture.

In this article, the team at Incomet discusses the modern take on the traditional person to person lending. Now called P2P or Peer-To-Peer Lending.

 

What is P2P Lending?

The process of getting secured loans can be quite tricky, even with the modern advancements in the space and paperless loan approvals becoming the norm. One still needs a lot of digital paperwork, caution towards aspects like credit score, current outstanding, etc. to be able to procure a loan from a reputed bank or financial Institution.

This is also when social aspects come to the help. Be it friends, family or sometimes even your professional circle. When you borrow money from your own connections, they are usually confident that they will get their money back. However this option limits your borrowing pool to people you know, for the people who like this option but do not want to limit their borrowing scope to only their own circle, the concept of P2P lending has surfaced.

P2P lending works through a mechanism of connecting people who want to lend to people who want to borrow. The borrowers pay interest and the people who lend earn interest. Exactly how it works with a bank but without the bank playing any role in between!  

 

How Does P2P Lending Work?

Websites or apps that connect borrowers and lenders directly are the platform on which all of this takes place. The person willing to invest would register themselves as the lender while the person willing to borrow would register themselves as a borrower. These platforms can have various guidelines in place to evaluate borrowers and can actually do as much assessment as a bank or another financial institution usually does.

The results coming from the assessment of the platform are for all to see and the lenders can evaluate this assessment and take a call on to whom they’d like to lend their money as per the risk they’d like take.  

 

Is P2P Lending Legal?

Yes! It is regulated by the Reserve Bank of India (RBI) and all activities need to take place as per the guidelines set by RBI on P2P lending. To set up a P2P lending platform, the NBFC-P2P license is also required.

 

Who Can Benefit From P2P Lending?

People with low credit scores or people who do not have all the paperwork necessary to secure a loan through a bank can greatly benefit from P2P lending.

Also people who are looking to invest their Money (apart from investing in the stock market after undergoing the best training for better gains) can diversify the portfolio by splitting their money assigned for P2P lending across various borrowers based on their assessment done by the lending platform.

That’s it for this article from the Team at Incomet. Be sure to stay tuned for the next!