Peer to Peer (P2P) lending serves as an online virtual marketplace that puts together lenders (people with savings) in touch with borrowers requiring funds (in the form of personal loans). This Fintech innovation is changing the way credit marketplaces works. By completely bypassing the bank, it enables quicker lending and borrowing. The investors get better risk-adjusted returns while borrowers get quick credit on low-interest rates. Since it is a platform where two parties interact, you can either register as a lender or a borrower.
Borrowers seeking personal loan register online. The P2P lending platform utilizes data and technology to assess the credit-worthiness of a borrower. You will be assigned a risk category and appropriate interest rate after your credit check. Credit-worthy borrowers get loan disbursed in minimum possible time. If you register as an investor/lender your account will be opened with the lending platform. You can start investing in consumer loans from an amount as low as 15K. You have the leverage to select loan in which you wish to invest. You can build your portfolio by choosing loans out of various risk categories.
As soon as borrower start paying the interest rates you will receive the returns in the form of EMIs (principal and interest). P2P lending offers inflation-beating returns several percentages higher than bank savings account or fixed deposits. You can either withdraw or reinvest to enjoy the compounding benefits.
What makes P2P lending unique?
1. Online Application Process: Money Lending Online is an instant way to avail capital in the form of personal loans. It’s entirely different from the traditional loan approval process of banks and credit unions; where you must manually apply by filling lengthy forms and visiting banks to review your loan status. In P2P lending, the entire loan application process is online. You just have to sign-up on the website to register as a borrower. Once you upload all the necessary documentation your loan will get approved depending upon your credit history and eligibility.
2. Easier loan approval: Banks and credit unions check your loan eligibility solely based on your credit history (CIBIL score). Online money lenders utilize alternative information to assess your credit-worthiness including your education, monthly income, credit-to-income ratio, and some other relevant financial parameter.
3. No collateral required: P2P lending offers uncollateralized personal loans. You don’t have to pledge collateral or any other security deposit to get the loan approved. Thus, in case you fail to repay an unsecured loan, then you will certainly face legal jurisdiction but there is no risk of losing your property.
4. Better rates: Lenders charge low-interest rate in comparison to institutional lenders such as banks. With P2P lending platforms, you can enjoy lower rates with nominal service fees (if any). P2P lending companies don’t have to maintain the same overhead as in the case of banks, which means they don’t face the similar regulatory costs. Ultimately, you get minimum interest rates on your personal loan.