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Peer to Peer Lending

P2P lending involves borrowers creating loan listings and lenders funding selected loans facilitated by a platform

Personal loan | Low interest rate | Fulfill ambitions

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How it works?

P2P lending involves borrowers creating loan listings and lenders funding selected loans facilitated by a platform

Frequently Asked Questions

What is Peer-to-peer Lending?toggleIcon

Peer-to-peer (P2P) lending is a revolutionary way where borrowers seeking personal loans connect with individuals willing to lend, bypassing the traditional banking system. It offers lenders an alternate investment opportunity while giving borrowers a streamlined way to fulfill their immediate financial needs through trusted platforms.

How does P2P Lending Work?toggleIcon

P2P lending in India works through registered platforms that connect individuals seeking loans with potential lenders. Just as UPI facilitates transactions between payers and receivers, these platforms link borrowers with lenders. After registering themselves borrowers can request for loan amount. Funding can be done in two ways- manual and auto. In manual lending, the lender selects borrowers whom they want to lend based on demographic and financial information updated on the platform. Whereas in auto-lending setup, the platform is responsible for deploying the funds based on lender preferences and its own set of rules.

How did P2P Lending come into existence?toggleIcon

P2P lending started in 2005 when Zopa introduced it first in the UK, sparking a new financial trend. The model quickly caught on in the US with platforms like Prosper and LendingClub. The 2008 financial crisis shook confidence in traditional banks, paving the way for P2P platforms as a more trusted alternative for loans and investments.

Is P2P Lending regulated in India?toggleIcon

Yes, P2P lending in India is regulated by the Reserve Bank of India (RBI), which oversees these platforms as P2P Non-Banking Financial Companies (NBFCs). RBI laid down detailed regulations for the operation of P2P NBFCs in 2017 and continues to monitor them. Only companies that have received CoR for P2P NBFC can operate P2P lending in India.

Who can invest, and how much?toggleIcon

Anyone over 18 with an Indian or NRO bank account can invest in P2P lending. Investments can range from a small amount up to Rs. 10 lakhs based on platform guidelines. For investments between Rs. 10 lakhs and Rs. 50 lakhs across platforms, a net worth certificate from a practicing Chartered Accountant showing a minimum net worth of Rs. 50 lakhs is required.

Who is eligible to borrow, and how much?toggleIcon

Indian citizens over 18 with valid KYC documents can apply for a loan on P2P lending platforms. The total borrowing limit across all platforms is capped at Rs. 10 lakh at any given time.

How are interest rates determined?toggleIcon

Interest rates on P2P loans are intricately tied to the borrower's creditworthiness. Factors such as their credit profile, existing financial commitments, the duration of the loan, and prevailing market conditions collectively influence the interest rate assigned to the loan. Typically, borrowers with robust credit histories and lower perceived risk levels are eligible for more favourable, lower interest rates.

What happens if a borrower does not repay?toggleIcon

If a borrower fails to repay their loan, P2P lending platforms take proactive measures to facilitate loan recovery. This includes implementing a structured collection process, which involves issuing reminders, imposing late fees, and reporting defaulters to credit bureaus to safeguard the lender's interests. In more severe cases, the platform may resort to legal action and engage recovery agents on behalf of the lender.

However, it's crucial to note that in the unfortunate event of a default, the lender bears the brunt of the financial loss. Despite the platform's efforts to mitigate risks, the responsibility for any incurred losses ultimately falls upon the lender.

What is fixed-return investment? Is P2P Lending a fixed-return investment?toggleIcon

A fixed-return investment guarantees returns at the time of investment. In contrast, P2P lending platforms offer variable returns based on the interest bore by borrowers. Although P2P lending can yield higher returns than traditional fixed-income investments, these returns are not guaranteed and depend on the loan performance in the investor's portfolio.

What are the advantages of lending on a P2P lending platform?toggleIcon

Participating in peer-to-peer (P2P) lending offers several distinct advantages. Firstly, it shields investors from market volatility, providing a stable addition to their investment portfolio and enhancing diversification. Moreover, the potential returns typically surpass those of traditional investments like fixed deposits and bonds, making it an attractive option for those seeking higher yields.

P2P lending also presents an opportunity for investors to engage in socially impactful ventures, aligning their investments with causes they care about. Additionally, its flexible nature allows for short-term investment strategies, catering to varying financial goals and timelines.

For borrowers, P2P lending bridges the gap, reaching segments of the population often underserved by conventional lending institutions. Its seamless digital process and borrower-friendly terms have democratized access to credit, empowering countless individuals and small businesses to fulfill their financial needs swiftly and efficiently.

Are investments in P2P Lending protected or insured?toggleIcon

Investments in P2P lending are not insured like bank deposits. While platforms usually have risk mitigation measures, they do not guarantee returns or protect against losses. Hence lenders must look at all possible scenarios before investing.

What is the tax structure for earnings from P2P Lending?toggleIcon

Interest income from P2P lending is taxed under "Income from Other Sources" according to your tax slab, similar to interest from savings or fixed deposits.

What happens if a P2P Lending platform shuts down?toggleIcon

RBI regulations require P2P NBFCs to have contingency plans and systems to protect investors' and borrowers' interests. Funds are held in the escrow account of the trustee bank to ensure continuity of operations. The agreement between lender and borrower remains valid even if the platform shuts in any circumstance.