How to borrow & lend money on P2P platforms?

Peer-to-peer lending or P2P lending is a monetary agreement between two parties without the involvement of financial institutions like banks. Borrowers seeking unsecured personal or business loans and investors seeking higher returns on the money they lend. P2P platforms enable a transaction where both parties benefit from the setup while the business acts as a middleman or risk mitigater in these digital and paperless transactions.

Peer-to-peer lending began as an alternative to traditional financing options. However, with the deployment of advanced technologies and systems, P2P platforms are more than that today. They are revolutionizing the funding space with fast loan disbursements and emerging as an alternative asset class with impressive returns. Rapid digitization has paved the way for the scope of market growth.

These platforms allow small and medium-sized enterprises (SMEs) to grow by offering financing alternatives with minimal fees and convenient repayment options. The pandemic has further popularized the platforms due to their ability to disburse loans completely digitally, without the need for physical visits, which is difficult to achieve with traditional funding setups. The development of blockchain, smart contracts and the introduction of government regulations act as catalysts to build trust in these systems, with P2P platforms providing transparency and reliable lending and borrowing facilities.

Here is a simple guide on how to borrow and lend money on P2P platforms:

Borrow money on a P2P platform

  • There are many platforms in India that offer online loans, but you don’t have to opt for the very first platform you see. Do your research on the platform, its eligibility criteria, interest rates, etc.
  • Borrowers can apply for loan up to Rs 10,00,000 on P2P platforms.
  • Attention should be paid to the transparency of the company, the size of the platform, the processing fees and the reimbursement options.
  • When one starts a registration process on any platform, they should ensure that they have certain documents in hand for uploading like Aadhar, PAN card, etc.
  • Once the platform verifies the loan seeker’s information and checks their credit history, they will receive a notification for the next steps.
  • Apart from the CIBIL score, the platforms also use different parameters such as capacity, stability, past performance and intent of borrowers, which are assessed on the basis of documents such as payslips, bank statements, ITRs , balance sheets, etc.
  • After verification by the company, the credit assessment mechanism sets the loan parameters – loan amount, interest rate and loan term.
  • Once accepted by the borrower, the loan is disbursed within 48-72 hours of their first login to the website.

Loan on a P2P platform

  • Any natural person, company, HUF company or legal person with a valid bank account and a PAN card can lend on a P2P platform.
  • Lenders can invest from Rs 500 to Rs 10-50 lakh on a P2P lending platform. However, those who invest more than Rs 10 lakh must produce a certificate from a certification authority certifying their minimum net worth of Rs 50 lakh.
  • Before placing their money on a platform, lenders should ensure that it is registered as an NBFC and a P2P lender with the RBI.
  • Lenders can choose a platform after undertaking their research on the returns and risk mitigation provided by the platform.
  • Later, they can register with their bank details, PAN and KYC details and then deposit funds into the lender’s escrow account.
  • Previously, lenders could choose who they wanted to lend money to. But to make things more convenient, all they have to do is choose a plan in which they want to invest the money in their escrow account.
  • There are a wide variety of plans available for both short and long term investments.
  • The lender receives his principal amount and his return on investment after the term chosen or can choose to obtain timely payments of the returns throughout the term and to receive the principal amount invested, at the end of it.
  • The lender can choose to lock in their money for the desired duration or they can choose a cash-friendly plan and withdraw the money when they need it. P2P platforms provide customers with a seamless and hassle-free lending and borrowing experience at minimal cost. Borrowers no longer have to wait in long lines or walk back and forth with a stack of documents. On the other hand, lenders can easily increase their wealth by placing their money on P2P platforms. It’s a win-win situation.


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Disclaimer

The opinions expressed above are those of the author.



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