Peer-to-peer lending is an alternative financing system that enables borrowers to get loans from other individuals without the involvement of a financial institution. P2P lending is also known as social lending as the transaction between lenders and borrowers takes place via various online platforms.
In peer-to-peer (P2P) lending the lenders directly send the loan to the borrowers. Lenders gain comparatively better returns than investment and savings products provided by banks. And borrowers with lower credit scores can lend at low-interest rates.
This blog explains P2P lending in detail – from its features and benefits to how to get a loan through a P2P lending platform. Keep reading!
The peer-to-peer lending process is hassle-free as it doesn’t comprise traditional methods like borrowing from banks, NBFCs, etc. The following steps will help you understand how P2P lending works:
Read the terms and conditions to check whether you are eligible for the loan or not. On successful application, the lender will provide a document comprising loan guidelines alongside an Annual Percentage Rate (APR) and other associated fees, etc.
If you like the lending terms and conditions and interest rates, you may fill out the application form. The lender will check your credit score.
Wait for a few days to get loan approval from the lender.
If your loan gets approved, various lenders will review your loan application.
Once your loan request gets enough investors, the amount will be electronically transferred to your account.
Based on the loan repayment terms, you will make monthly payments to the investors.
Listed below are important features of P2P lending:
Here are the benefits of peer-to-peer lending:
Here are the steps to get a loan through a p2p lending system:
Visit the official website of a P2P lender that offers services in your region and register yourself.
You may find various Peer to peer lending apps that will connect you directly to the lender.
The website will connect you with the potential lender who will lend you the loan amount.
Before signing the agreement with the lender, make sure that you pass every verification stage including personal information, background, employment position and credit history.
The lenders will be checking your financial background and your reasons behind opting for the loan.
After getting confirmation, the lender will provide you with several options to select from. You have to decide the one that best suits your needs.
Anyone facing a financial crisis or in desperate need of money can borrow credit from Peer to peer lending system. Although their portals are open to everyone, they mainly draw individuals with low incomes or poor CIBIL scores for loans. But everything depends on the lender’s final decision.
Discussed below are some of the important pros and cons of P2P lending:
|P2P Platform’s Name||Rate of Interest (per annum)||Amount of Loan||Repayment Period||Registration Fees|
|Faircent||Starts from 9.99%||Rs.10,000 to Rs.5 lakh||6 months to 3 years||Rs.500|
|Lendbox||Starts from 12%||Rs.25,000 to Rs.5 lakh||6 months to 2 years||Rs.500|
|i-lend||Starts from 15%||Rs.25,000 to Rs.5 lakh||6 months to 3 years|
|LenDenClub||Starts from 6.5%||Rs.25,000 to Rs.5 lakh||3 months to 2 years||Rs.750|
|i2ifunding||Starts from 12%||Maximum of Rs.10 lakh||3 months to 3 years||Rs.118 (including 18% GST)|
|OMLP2P||Starts from 10.99%||Rs.25,000 to Rs.10 lakh||3 months to 3 years||Rs.100|
|P2P Platform’s Name||Processing Fees|
|Faircent||2.5% to 8.5% depending upon loan amount, rate of interest and time interval|
|OLMP2P||1% to 10% of the amount sanctioned depending upon loan tenancy|
|i-lend||4% of the loan amount|
|LenDenClub||Rs.400 (including GST) for loan amounts up to Rs.100004% for loan amounts greater than Rs.10000 (subject to a minimum of Rs.2000)|
|Lendbox||2% to 6% depending on the loan amount|
|i2iFunding||3% to 6% for salaried individuals 4% to 8% for self-employed individuals|
Here are the key points to keep in mind as a borrower:
Peer-to-peer lending is becoming a popular method of availing of a loan by businesses and individuals. Individuals with low credit scores can get better deals and businesses can get crowdsourced funds. It also works for lenders who want better returns. However, do your research about the P2P lending platform before borrowing or lending. If you want hassle-free, instant cash loan approval in a 100% paperless manner, download the Navi App to get the amount credited directly to your account in minutes.
Ans: Yes, P2P lending is legal in India. The Reserve Bank of India issued the ‘Master Directions for NBFC Peer to Peer Lending Platforms’ a few years back. As per these regulations, only NBFCs can register as P2P lenders after procuring the requisite permission from the central bank. In addition, P2P lenders must obtain a certificate of registration from RBI before beginning operations.
Ans: As P2P loans are most personal loans, you can use the funds for any purpose, including funding your education or refinancing high-interest debts. You can also use it to develop and expand your business.
Ans: Investors earn interest on the amount they invest in P2P lending, and taxes have to be paid on the interest amount. It falls under the category of ‘Income from Other Sources’ for taxation purposes and is taxed as per the income tax bracket the lender falls in.
Ans: The maximum amount that a single person can lend across all the P2P lending platforms at the same time is ₹50 lakh. The maximum amount that a borrower can avail from P2P lending platforms is ₹10 lakh. Another important point is that one lender cannot lend more than ₹50,000 to a particular borrower.
Ans: Generally, bank loans provide an interest rate between 10-15%. But after the extra charges get added, this rate rises to 25%. However, in the case of P2P loans, you do not have to pay any extra charges.
Ans: P2P loans are safe for borrowers with moderate income and poor credit scores. This is because the online portals offering loans act as middlemen between lenders and loanees.
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