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Peer to Peer Lending

Peer to Peer Lending

Last Updated : Oct. 14, 2022, 6:14 p.m.

P2P lending is another name for peer to peer lending in common usage. Additionally, it is a well-known financing strategy that enables borrowers to obtain unsecured personal loans from private lenders. A list of confirmed borrowers is available on many peer to peer lending platforms, and investors can use this data to verify the information before lending to borrowers. Lending small loans to several borrowers and investors in diversifying their investment portfolios.

Platforms for peer to peer lending impose processing fees and interest rates

Peer to peer lending is a high-risk lending environment because the majority of the borrowers using these platforms have subpar credit and are therefore ineligible for offers of loans from banks and NBFCs . Therefore, the interest rates and processing costs levied by these platforms are considerable. To learn more about the interest rates and processing costs levied by peer to peer lending services, consult the following table.

P2P Lending Platform Interest Rate Processing Fee
Lendbox 12% onwards 2% to 6%, depending on how much the loan is
Faircent 9.99% onwards 2.5% to 8%, depending on the loan's size and term
I2iFunding 12% onwards - For salaried debtors, 3% to 6%
- For self-employed debtors, 4% to 8%
OMLP2P 10.99% onwards 1% to 10%, depending on the loan's size and term
LenDenClub 6.5% onwards - For loans up to ₹10,000, the fee is ₹400 (plus GST).
- 4% of loans for sums above ₹10,000
i-Lend 15% onwards 4% of the loan amount

Please take note that the rates listed in the table above are subject to change. Before application, it is important to properly check with the lender. The final interest rates will also rely on variables such as payback duration, age, monthly income, and Credit score .

Features of peer to peer Lending

Below, there is a list of key features of P2P lending. They are as follows:

  • Online P2P lending platforms have information on verified borrowers and investors.
  • The borrower or the lender doesn’t need to know each other. The peer to peer lending platform will take responsibility.
  • The loan tenure of a peer to peer loan is three months to thirty-six months.
  • Many lenders consider P2P lending platforms as a smart investment strategy because they gain high-interest rates on their capital.
  • There is no middle party or any involvement of any financial institution between the borrower and lender except the Peer to peer lending platform on the internet.

Benefits of Choosing peer to peer Lending

P2P lending offers a variety of benefits to the investors which makes it an attractive investment solution. Some of the benefits of P2P are listed below.

Attractive Rate of Interest: It is especially for investors as peer to peer lending provides higher interest rates and hence it is a popular investment option among investors.

User Friendly: The entire process for the peer to peer lending system must be completed using an internet portal. The application procedure is quite short and practical. Additionally, lenders have access to the borrower profiles, allowing them to select their preferred applicants.

Ideal for Users with a Low Credit Score: peer to peer lending platforms are a popular financial solution for borrowers who have low credit scores . The application of these users mostly gets rejected by Banks and NBFCs. Hence peer to peer platforms help these types of borrowers fulfill their financial requirements.

No Requirement of Security or Collateral: peer to peer platforms use an unsecured loan locker and hence the borrower is not tied with any security of collateral.

Working on Peer to Peer Lending System

While peer to peer lending is distinct from traditional financial institutions like banks and NBFCs, its operational concept is straightforward. The user merely needs to sign up for these P2P lending services, either as a lender or a borrower. The peer to peer platform would collect the money from the investors and lend it to the borrowers who had signed up on their platform.

For getting a loan through a peer to peer lending system the users have to follow the steps mentioned below.

  • Initially, the user has to fill out an online P2P form to register themselves as a borrower on the portal.
  • Secondly, the borrower will have to pay a registration fee between ₹100 to ₹1000. But this registration fee is one-time and it is not refundable.
  • Now, the users have to upload their scanned copies of personal documents like Aadhaar cards , Pan Card, and driving licenses. Employees should submit their previous three to six months of salary slots and other professionals need to submit a scanned copy of income tax returns.
  • Some platforms might ask the users to link their social media accounts such as LinkedIn, and Twitter for evaluating their profile and social behavior.
  • After getting registered over the platform the P2P risk assessment team will evaluate the borrower’s risk profile. If the borrower gets qualified then their profile will be listed on the platform along with their loan requirement.

A P2P lending platform is an alternative financial solution that helps connect verified borrowers who require unsecured personal loans with investors. Simultaneously, it is a popular platform for investors who seek higher returns on their investments. This industry is expected to grow and become a ₹5 billion industry by 2023.

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