You need money urgently. So what do you do? You rush to the bank and try to avail a personal loan. Studies have shown that salaried citizens are most likely to take loans. Even after demonetization, many citizens are reluctant to avail loans, because of the paperwork involved. Even though loans are sanctioned quickly, they still take time.
Citizens who are afraid of availing loans from banks rush to moneylenders. If money is needed in a hurry, what else can these poor people do? These moneylenders squeeze their neck, charging exorbitant interest, which these citizens take years to repay.
This is when a new type of lending comes to your aid. Yes, P2P lending is taking off in India. Peer-to-Peer lending popularly called P2P lending, is a platform which connects borrowers with lenders. You and other borrowers are charged lower interest, compared to costly loans. If you are a lender on a P2P platform, you get a chance to earn higher interest compared to a savings account or an FD.
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You must be well familiar with online marketplaces like Flipkart and Amazon, which help buyers and sellers transact, by bringing them on a single platform. Borrowers and lenders come on a P2P Platform in much the same way.
You are not happy with the interest offered by banks on your FD's and savings bank accounts. You can go to a P2P Platform and register as a lender. Some P2P platforms charge a one-time fee to register with them, while some others charge fees, depending on the amount you lend.
So how do you lend on a P2P Platform? Borrowers on a P2P Platform are listed under different risk categories. A low-risk borrower is charged around 12-13% interest a year. A high-risk borrower is charged 25-30% interest a year. If you are a lender on a P2P platform, you can earn around 12-22% a year, depending on the type of borrower.
RBI regulates P2P lending in India.
You got to remember that P2P lending is risky. P2P lending is unsecured and there is a chance of a borrower defaulting on the loan. P2P Platforms have excellent risk management systems and filtering processes, but there are chances of a borrower defaulting or delaying payments.
The P2P Platform tries its best to recover the money from borrowers. If the P2P Platform cannot get the money back, then you must take legal options and bear the costs. If you are a lender on a P2P Platform, you can minimize risk by diversifying your lending. You can lend loans of small ticket size to different borrowers at different interest rates.
The P2P Platform does not promise lenders assured returns. The old saying holds true. If you want high returns you got to take risks.
SEE ALSO: How Does Peer To Peer Lending Work?
There is a common saying, banks will lend you money only if you don't need it. It's easy to get a personal loan at lower interest rates from banks, if you work for a reputed Company in a large city or a metro. If you work in a tier-2 Company or you are self employed, the bank could charge you higher interest on your personal loan. This is when you can approach a P2P Platform.
If you avail a personal loan from a bank and you have a good credit score, you may have to pay around 16-18% interest a year. An NBFC could charge around 21-23% interest a year. You could get a loan from P2P lending at around 13-14% a year.
P2P Platforms generally have more borrowers than lenders. So you get loans at competitive interest rates. People who are creditworthy and don't get loans from banks and NBFCs, approach the P2P Platform.
P2P Platforms have excellent risk management systems and can easily detect borrowers who intend to default on loans. P2P Platforms check banking details, credit scores, social media activity and income tax returns of potential borrowers on the platform. Many of the P2P Platforms reject close to 80-90% of borrowers and send the message, Not everyone can get a loan. You need to be worthy of it. Be Wise, Get Rich.
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