Financial Glossary

Annual Percentage Rate — the true yearly cost of borrowing including interest and all fees, expressed as a single percentage for comparison.

The gradual repayment of debt through scheduled payments. Early EMIs are interest-heavy; later EMIs reduce more principal.

Confirming borrower's residence through online mode via CKYCK to establish contact ability for recovery if needed.

Automated fund allocation based on your preset criteria — risk grade, tenure, amount, rate. Saves time and ensures consistent diversification.

Dispute resolution method outside courts. Faster and cheaper. P2P loan agreements typically include arbitration clause for disputes.

Investments beyond traditional stocks, bonds, FDs. P2P lending is classified as alternative investment offering portfolio diversification.

An individual who receives funds from lenders through the platform and repays with interest over an agreed tenure. Must pass platform's credit assessment and other KYC verification

Fee charged when an EMI auto-debit fails due to insufficient funds in the borrower's bank account. Typically ₹500-700 per bounce.

BQS is a proprietary underwriting framework of 1Finance P2P where we assess 250 plus data points to evaluate borrower financial strength.

Moving high-interest credit debt to a lower-interest personal loan to save on interest payments.

Crowdfunding collects many small contributions for a project (often donations).

Corporate Identification Number — a unique 21-digit alphanumeric code assigned to companies registered in India. Verify platform's CIN on MCA website.

Official RBI document authorizing a company to operate as NBFC-P2P. Issued under Section 45-IA of RBI Act, 1934.

A 3-digit number (300-900) representing creditworthiness based on credit history. Higher scores indicate lower risk. 750+ is considered good.

Credit score provided by TransUnion CIBIL, India's oldest credit bureau. Most lenders require 650+ for approval. Check yours free annually.

Organizations (CIBIL, Experian, Equifax, CRIF High Mark) that collect and maintain credit information of individuals and generate credit scores.

Detailed record of your credit history including all loans, credit cards, payment history, inquiries, and defaults. Available free once a year.

Record of how you've managed credit over time — payment patterns, defaults, outstanding debts, and account age. Longer positive history is better.

Platform's evaluation of borrower creditworthiness using bureau scores, income verification, bank statements, and behavioral data.

Risk of putting too much money in a single borrower or risk grade. Avoid by following single borrower limits and diversifying.

Additional person who shares loan responsibility equally. Their income and credit are considered for eligibility. Both are liable for repayment.

Interest calculated on principal + accumulated interest. Reinvesting P2P returns monthly generates compound growth over time.

A capital gain is the profit earned from selling an asset—such as stocks, property, or land—for a higher price than its original purchase cost.

Percentage of available credit being used on credit cards. High utilization (>30%) negatively impacts credit score even if you pay on time.

Asset pledged as security for a loan. If borrower defaults, lender can seize collateral. Not used in P2P — all P2P loans are collateral-free.

Revolving credit facility for purchases. High-interest debt (36-48% p.a.) that can hurt credit if mismanaged. Consolidation via P2P loan is common.

Variety of credit types in your history (credit cards, personal loans, home loan, etc.). Healthy mix can improve credit score.

Maximum amount you can borrow on a credit card or line of credit. Keep utilization below 30% of limit for healthy score.

Having good credit history and financial capacity to repay loans. Higher creditworthiness means lower risk and potentially lower interest rates.

The transfer of loan funds from the escrow account to the borrower's bank account after the loan is fully funded by lenders.

Protection of user personal and financial information as mandated by IT Act and RBI data localization norms.

When a borrower fails to repay as per the agreed schedule for 90+ days. P2P investments carry default risk with no guarantee of recovery.

Percentage of loans that have defaulted on a P2P platform. Key metric for evaluating platform performance. Lower is better.

Days Past Due — number of days a payment is overdue. DPD 0 means current; DPD 30+ triggers warnings; DPD 90+ is NPA.

When a borrower misses a payment deadline. Early delinquency (30-60 days) may recover; prolonged delinquency leads to NPA classification.

Spreading investments across multiple borrowers, risk grades, and tenures to minimize loss impact from any single default. Golden rule of P2P.

Debt-to-Income Ratio — total monthly debt payments divided by gross monthly income. Lower DTI (under 40%) is better for loan approval.

Your personalized view showing portfolio value, active loans, earnings, upcoming EMIs, defaults, and performance metrics at a glance.

Combining multiple high-interest debts into a single lower-interest loan. Common use case for P2P borrowers to reduce overall interest burden.

A secure bank account where all P2P funds are held. Money never touches the platform directly, ensuring safety and regulatory compliance.

Electronic KYC using Aadhaar-based verification for instant, paperless identity confirmation. Faster than manual document verification.

RBI-mandated maximum of ₹50 lakhs total lending per lender and ₹10 lakhs borrowing per borrower across all P2P platforms combined.

Equated Monthly Installment — fixed monthly payment covering principal + interest, calculated using amortization formula. Same amount each month.

The fixed date each month when EMI payment is due. Usually the same date as loan disbursement or a platform-specified date.

Confirming borrower's job status, employer, designation, and tenure to assess income stability and repayment capacity.

Maximum loan you qualify for based on income, existing EMIs, credit score, and platform criteria. Use EMI calculators to estimate.

Projected interest income after accounting for platform fees and estimated defaults. Not guaranteed — actual returns may vary.

Electronic signature using Aadhaar authentication for legally valid digital signing of loan agreements. No physical paperwork needed.

Electronic National Automated Clearing House — auto-debit authorization for recurring EMI payments from borrower's bank account.

When auto-debit for EMI fails due to insufficient funds. Attracts bounce charges (₹500-700) and negatively impacts credit score.

Splitting your investment across multiple borrowers in smaller amounts (e.g., ₹5,000 each) to reduce concentration risk. Core diversification strategy in P2P.

When lenders commit money to a borrower's loan request. A loan is 'fully funded' when the requested amount is reached from one or multiple lenders.

RBI-mandated guidelines that P2P platforms must follow for transparent, ethical treatment of borrowers and lenders including clear disclosures.

Paying off the entire remaining loan balance before the scheduled end date. Also called pre-closure or early settlement.

Interest calculated on original principal throughout tenure (not on reducing balance). Results in higher effective rate. Rarely used in P2P.

Fixed Obligation to Income Ratio — percentage of income going toward all EMIs. Lenders prefer FOIR under 40-50% for new loan approval.

A fixed deposit (FD) is a tenured deposit account provided by banks or non-bank financial institutions which provides investors a higher rate of interest than a regular savings account, until the given maturity date.

Financial Technology — technology-driven financial services. P2P platforms are fintech companies disrupting traditional banking lending.

Mandatory mechanism for addressing user complaints within stipulated timelines (30 days) as per RBI guidelines. Escalate to RBI Ombudsman if unresolved.

Person who agrees to repay if the primary borrower defaults. Provides additional security but isn't co-owner of the loan.

Credit check that appears on your report when you apply for a loan. Multiple hard inquiries in short time can lower your score.

Annual percentage charged on the principal. Displayed as % p.a. (per annum). P2P rates typically range 10-24% based on risk grade.

Documents verifying income — salary slips, bank statements, ITR for salaried; GST returns, financials for self-employed. Mandatory for P2P.

Internal Rate of Return — annualized return considering timing of all cash flows. More accurate than simple interest for comparing investments.

Earnings from interest received on loans given. Taxable as 'Income from Other Sources' at your income tax slab rate.

Rise in prices reducing purchasing power of money. Your P2P returns should ideally beat inflation (6-7%) for real wealth growth.

Know Your Customer — mandatory identity verification (Aadhaar, PAN, address proof) required for all platform participants before lending or borrowing.

An individual who provides funds to borrowers through the P2P platform in exchange for interest returns on their investment. Also called investor in P2P context.

A verified borrower profile visible to lenders, displaying loan amount, purpose, risk grade, tenure, and offered interest rate for investment consideration.

The section of the P2P platform where lenders browse and select from available borrower loan requests based on their investment criteria.

Penalty charged when EMI payment is delayed beyond the due date. Usually a percentage of overdue amount or flat fee.

Legal contract between lender and borrower specifying all terms — amount, interest, tenure, fees, and repayment schedule. Digitally signed.

Loan-to-Value Ratio — loan amount as percentage of asset value. Used in secured loans (home, car, gold). Not applicable in unsecured P2P.

Ease of converting investments to cash. P2P has low liquidity — funds are locked until EMI receipts or loan maturity. Plan accordingly.

Minimum time your investment must remain committed to a loan. Typically equals the loan tenure as you can't exit until borrower repays.

Replacing existing loan with a new one at better terms (lower rate, longer tenure, lower EMI). Common for reducing interest burden.

A temporary pause on EMI payments, typically offered during emergencies (like COVID). Interest continues to accrue during moratorium.

Manually selecting individual borrower listings to invest in. Offers more control over each investment but requires more time and effort.

Pooled investment vehicle managed by professionals. Unlike P2P, offers market-linked returns with professional management and liquidity.

Non-Banking Financial Company (Peer-to-Peer) — RBI-regulated entity licensed to operate P2P lending platforms in India under Master Directions issued in 2017.

Designated platform official responsible for addressing grievances and ensuring regulatory compliance. Contact details must be publicly displayed.

Non-Performing Asset — a loan where EMI payment is overdue by 90+ days. Classified as a defaulted loan requiring provisioning.

Total assets minus total liabilities. Higher net worth indicates better financial health and repayment capacity in case of income disruption.

Actual yield after deducting platform fees, defaults, and TDS. The real money you take home from P2P investments.

National Automated Clearing House — RBI's payment system for bulk, repetitive transactions like EMI collection. Works for all banks.

An RBI-registered digital marketplace that connects lenders with borrowers, handles KYC, credit assessment, fund transfers, and provides a secure environment for peer-to-peer transactions.

Direct interaction between individuals without institutional intermediaries. In lending, it means direct lending between people facilitated by a digital platform.

Using P2P platforms as an investment avenue by lending money to borrowers for interest returns. An alternative investment class beyond FDs ,Stocks, Mutual Funds, Bonds, Debt Mutual Funds.

Risk that the P2P platform itself may face operational issues, shutdown, or regulatory action. Mitigate by choosing RBI-registered platforms.

The original loan amount borrowed or lent, excluding interest. EMI payments gradually reduce principal over the loan tenure.

Early loan repayment before tenure ends. May involve pre-payment charges (typically 2-4% of outstanding). Reduces total interest paid.

Paying an amount above your regular EMI to reduce outstanding principal, lowering future interest burden and potentially tenure.

One-time charge (typically 1-5% of loan amount) deducted upfront for loan processing and documentation. Non-refundable.

Loan offer based on preliminary assessment without full documentation. Final approval may differ after complete verification.

Service charge by the P2P platform — typically 2-5% of interest earned from lenders and 1-5% processing fee from borrowers.

Collection of all your active loan investments across different borrowers, risk grades, and tenures. Diversified portfolio is healthier.

Unsecured loan for personal use — medical, wedding, travel, debt consolidation. No collateral required. P2P is one source of personal loans.

Monthly payments made by borrowers consisting of principal and interest, distributed proportionally to respective lenders who funded the loan.

Reserve Bank of India — the central banking regulator that governs all NBFC-P2P platforms, sets lending guidelines, and protects consumer interests.

Comprehensive guidelines issued by RBI in October 2017 (updated 2019) governing NBFC-P2P operations including caps, escrow requirements, and disclosures.

A rating (typically A to E or similar) assigned to borrowers based on creditworthiness. Higher risk grades offer higher interest but higher default probability.

Process of collecting overdue payments from defaulting borrowers through reminders, collection agents, legal notices, or arbitration.

Percentage of defaulted loan amount successfully recovered. Higher recovery rate means better platform collection efficiency.

Interest calculation method where interest is charged only on outstanding principal. Standard in P2P. More borrower-friendly than flat rate.

Returns compared to risk taken. Higher-risk P2P investments should offer higher returns to justify the additional risk.

Using received EMI payments to fund new loans instead of withdrawing. Enables compounding and maintains portfolio size.

Return on zero-risk investments (govt bonds, FDs at ~7%). P2P returns should significantly exceed this to compensate for default risk.

RBI rule limiting investment to ₹50,000 per lender to any single borrower. Enforces diversification and reduces concentration risk.

Credit check that doesn't affect your score, such as checking your own report or pre-approval eligibility checks.

Loan backed by collateral (property, gold, car). If borrower defaults, lender can seize collateral. NOT applicable in P2P — all P2P loans are unsecured.

Interest calculated only on principal: SI = P × R × T/100. Used for short-term calculations. Does not consider compounding.

Feature (on some platforms) allowing lenders to sell their loan investments to other lenders before maturity for early exit.However this is not allowed for P2P.

Paying less than full amount owed to close a defaulted loan by negotiation. Appears as 'Settled' on credit report — negative mark for 7 years.

Securitisation Act allowing banks/NBFCs to recover secured NPAs without court. Applies to secured loans only — not to unsecured P2P loans.

Escrow account managed by an independent trustee bank (not the platform) ensuring complete separation of platform funds from user funds.

The loan duration in months. P2P loans typically range from 3 to 36 months. Longer tenure means lower EMI but more total interest.

Loan given without collateral, based solely on creditworthiness. All P2P loans are unsecured personal loans with higher interest rates.

Recurring payment mandate via UPI for automatic EMI debits. Alternative to bank NACH. Set up through any UPI app.

Peer-to-peer lending is a method of debt financing where individuals borrow and lend money directly through an online platform without traditional bank intermediation. It's also called social lending or crowd lending.

When a lender marks a loan as uncollectable after extended default (usually 180+ days), accepting it as a loss on books.

Borrower who deliberately avoids repayment despite having capacity to pay. Leads to legal action, asset seizure, and credit blacklisting.

Extended IRR — calculates returns for irregular cash flows at specific dates. Ideal for P2P with varying EMI receipt dates. Most accurate metric.

Effective annual return on investment expressed as percentage. Higher yield means more profitable investment. Compare after-fee yield.