Online Lending : Five key things to note
Key things to note before online lending through P2P platforms
The emergence of a large number of online lending companies over the last few years has been a crucial factor in the ever-changing landscape of the country’s lending space. Talking of online lending, one can never afford to overlook the rise of so many Peer to Peer lending platforms that have revolutionized the online lending space in the country. While P2P lending has provided an excellent option for investors to earn handsome returns on their investments, the borrowers too have benefited from the P2P Lending sites. Undoubtedly, the promise of handsome returns and the simplicity of the investment process have caught the imagination of many investors.
However, in this promise of good return lies some pitfalls, which should be identified. The purpose of this article is to educate those who want to do online lending through P2P Lending sites but unsure of how to approach the same. This article would prove to be more than useful for these investors and serve as a reliable set of guidelines to follow.
In light of the fact that several P2P lending sites have emerged in the recent past, it’s worthwhile that investors spend some time choosing the appropriate P2P Lending platform. While a few Peer to Peer, Lending platforms are serious and committed players, a number of fly-by-night operators have also entered the turf to make quick and easy money. Additionally, after 3 months only P2P lending firms who have taken/applied for the CoR (Certificate of Registration) will be in operation. Hence, prospective investors need to be extra careful while selecting P2P Lending sites for online lending.
This article would enable the investors to separate the grain from the chaff. While online lending through P2P Lending sites, investors should pay careful attention to the following five factors before deciding whether to invest or not:
1. Robust credit evaluation of borrower’s profile
The borrower profile evaluation section is the nerve center of the P2P lending platform. Online lending to an undeserving borrower not only wipes out investor’s money, it also brings disrepute to the concerned peer to peer lending platform. Any serious P2P Lending site should have a robust credit evaluation process in place to approve only creditworthy borrower profiles. In this regard, it’s worth mentioning that the selection ratio is barely 10% for I2I Funding. This means that out of every hundred loan applicants, only ten applicants are finally decided to be eligible for the loan. At I2I Funding, the borrower profile evaluation team does not rely only on the CIBIL score. More than 50 non-traditional parameters like education level, monthly disposable income and property ownership are taken into account to decide whether a loan applicant is creditworthy or not. In addition to the above, physical verification of property and documents is carried out to eliminate any chance factor. I2I Funding is one of the first players in the industry to wholeheartedly embrace technology to make the borrower profile evaluation process failsafe. Introduction of innovative processes like the E-KYC have made it a lot easier to record and verify borrower credentials. Recent disruptive technological advancements like the big data analytics, psychometric analysis and analysis of mobile data have been incorporated into the system to make it full-proof.It’s not a matter of coincidence that I2I Funding has one of the lowest default rates in the entire online lending industry. Undoubtedly, I2I Funding has a robust credit evaluation system in place that is worth emulating. It is important to mention here that of all the P2P Lending platforms, I2I Funding has one of the best return rates and least default rates. In case of I2I Funding, the average returns hover in the range of 18 to 22 % and the default rate is less than 4 %.
Empowering investors and enabling them to take informed lending decisions should be the ultimate objective of every P2P Lending platform. In this regard, it is of utmost importance that P2P lending sites allow lenders to choose their own borrowers based on their risk appetite.P2P Lending sites concerned about safeguarding investor’s interests provide the investors with detailed analysis of the borrowers’ profiles. Based on the above, lenders can take their own call about which borrowers to invest in. I2I Funding classifies its borrowers into six categories based on their profiles with F being the riskiest profile and A being the least risky one. While deciding on the risk categories, every aspect of the borrower profile ranging from education status to monthly disposable income is taken into account. A detailed analysis of the borrower profile along with the risk category is provided to the investor to facilitate his decision making. In addition to the above, any reliable P2P Lending sites should have transparent fees structure. This is where I2I Funding fares better than many of its counterparts. The payment terms are explained well in advance to the stakeholders and there are absolutely no hidden charges involved in the process.I2I Funding strictly follows the fee schedule as presented on its website.
3. Data Security
From an investor’s perspective, data security is of paramount importance.Investors trust P2P lending sites with sensitive data and documents. It is the responsibility of the peer to peer lending sites to ensure safety of the data. Any breach of security could result in sensitive data falling in the hands of unscrupulous person which can have disastrous consequences for the investor.I2I Funding has multiple safeguards in place to ensure data protection. Here, the highest degree of importance is accorded to data security and confidentiality of the investor information is respected.
4. Presence of Safety Net
Any reliable P2P Lending platform should have a safety net of one form or the other to safeguard the investors’ wealth. There should be mechanisms in place to mitigate the overall risk borne by the investors. In this regard, it’s worth mentioning the initiatives taken by I2I Funding.First of all, investors are encouraged to invest in multiple borrower profiles instead of putting in all their money in one borrower. In this way, investors get the opportunity to build a diversified portfolio. Such a measure helps to limit risk to a large extent.Additionally, a well-crafted risk distribution program offers an excellent opportunity to the investors to secure their investment. Through this unique initiative, I2I Funding empowers the investors to choose the extent to which they would like to protect their principal amount. The investors contribute a certain amount to a common repository. This amount is decided by the extent of protection sought on the invested amount.The extent of protection ranges from 0% to 100%. It’s entirely up to the investor to decide the extent to which he would like to protect his principal amount.On peer to peer lending platforms, loans are mostly unsecured personal loans. In case of default, money from the reserve is distributed among the investors in proportion to the initial money contributed. The introduction of the risk distribution programeliminates even the minuscule risk associated with the borrowers defaulting on the loan repayment.
5. Overall Online Lending Experience
A successful P2P Lending platform must score well in terms of the overall user experience. This includes a user-friendly website, timely notifications about receipts and dues and seamless flow of information among all the stakeholders. A pro-active grievance redressal cell is equally important in handling disgruntled consumers. The grievance redressal cell should be capable enough to resolve customer grievance at the earliest.It’s worth noting that I2I Funding strives really hard to ensure that the overall user experience exceeds the consumer expectations.Thus, while online lending is providing a smart investment option to the modern-day investor, it’s not bereft of pitfalls. Any investor must invest a significant amount of time in choosing the right peer to peer lending platform as this could be the make or break decision. A wrong decision could result in the loss of hard earned investors’ money.The key lies in choosing the right peer to peer lending site.The above list, albeit not exhaustive, can serve as an important set of guidelines for investors looking for high return investment opportunities. It’s also worth mentioning that if the above five factors are treated as checklist, I2I Funding fares exceedingly well in each of the parameters.