Peer-to-peer lending, also known as P2P lending, allows borrowers to seek loans from investors through an online platform. This alternative financing method is mutually beneficial; borrowers get the money when they need it, and investors earn a higher return on their investments.
P2P lending is hugely popular and gaining traction at a very fast pace. If you are in need of instant money, a P2P lending platform could be the right option for you. Let’s understand the features and benefits of peer-to-peer lending and how you can get a loan from P2P platforms.
Features of Peer-to-Peer Lending –
Key features of P2P lending platforms include:
- The P2P lending system helps individuals who don’t have access to traditional banking systems get loans from people who want to invest their money.
- P2P lending eliminates the need for a financial intermediary or a banking system in the borrowing or lending process, thus extending credit to people who cannot get it through banks and other financial institutions.
- This alternative financing system offers benefits to borrowers as well as investors. Borrowers can get a loan at a low-interest rate, and investors can earn good returns on their investments.
- The borrowers and investors are directly connected through an online platform, which allows registration only after properly assessing the credentials of its members.
- The Reserve Bank of India regulates all peer-to-peer lending platforms.
How to Get a Loan through Peer-to-Peer Lending System?
Here’s a step by step process of how P2P lending works to offer you a loan:
- You must register by filling up your personal, professional and financial details on an online form.
- A registration fee may be applicable.
- Provide all the documents asked during the registration process.
- Mention the loan amount and the loan tenure.
- Once your profile is created, the P2P lending platform will carry out Cibil score verification.
- Your credit score is assessed, and the interest rate is decided based on it. If your credit score is high, the interest rate applicable will be low.
3. Profile Listing
- Your profile is listed for prospective lenders to view. Your profile will have information such as your credit score, the purpose of the loan, loan amount, etc.
- If your profile convinces a lender or multiple lenders, they can choose to give you a loan.
- Multiple lenders (usually 4 to 5) can decide to loan you the money. Once up to 75% of the loan is funded, it will be disbursed after a loan agreement is signed between you (borrower) and the lender.
- You must provide the required number of post-dated cheques for disbursement to proceed.
- You must register a National Automated Clearing House (NACH) mandate to automatically debit the EMI amount in favour of the lender(s). Learn how to manage EMIs.
Benefits of P2P Lending –
Some of the key benefits of P2P lending include:
- Lower interest rates than most banks and other financial institutions
- The loan application and disbursal process is quick and hassle-free
- Minimal documentation
- Easy to meet eligibility criteria
Eligibility Criteria –
Anybody who needs money can approach P2P lending platforms. This attracts a lot of people of a low-income group or low CIBIL score, who traditional banks usually reject. That said, the final decision to lend is with the lender (investor or the institution).
Advantages of P2P Lending Over Traditional Banks –
Here are a few advantages that P2P lending has over traditional banks:
- Traditional financial institutions and banks are very strict regarding borrowers’ income and CIBIL scores. But with the peer-to-peer lending system, the lender decides whether they want to give the loan or not.
- People with poor CIBIL scores and low income can get loans. Here’s how you can repair credit.
- Borrowers can negotiate with the lenders directly for lesser interest rates and better loan terms.
- Only a few documents are needed to process the loan.
- Compared to traditional banks, the P2P lending process and disbursement is simple, fast and convenient.
It is quite evident that P2P lending platforms are an excellent option for the borrower as well as the investor. For those who are in need of quick funds, online P2P lending is the best option available – it’s fast, simple, and offered to you at a lower interest rate than most traditional banks.