P2P Lending in India: 10 things you should know
If you’ve been following our previous posts, you might have a fair idea about P2P Lending in India. P2P lending is not only a way of getting a loan easily, but it also an efficient mode of investment.
Let’s get to know more about P2P lending, especially within the Indian context.
P2P Lending Basics
Over the last few years, we’ve witnessed a good number of changes in the finance industry – like the introduction of peer-to-peer lending, commonly referred to as P2P lending. It began in UK by a company called ZOPA around 2008. Within no time, P2P lending spread around the world. In India, it started only couple of years back.
P2P Lending involves individuals lending and borrowing money to each other online, without any additional assistance from a traditional financial institute.
As a borrower, you can still get a P2P loan, even if you are not eligible for bank loans. On the other other hand, if you have some money to spare, you can become a lender on a P2P lending platform and earn high rates of interest on the amount that you lend to borrowers. The industry is quickly gaining popularity in India – which is why the RBI has moved quickly to recognise it.
Regulations by the Reserve Bank of India for P2P Lending in India
The Reserve Bank of India (RBI) has been taking steps to regulate the fast-growing peer-to-peer (P2P) lending space. Some of these regulations are mentioned below:
- All the P2P Lending platforms will have to apply for certificate of registration (CoR) with RBI for NBFC-P2P Lending and will be treated as Non-Banking Financial Companies (NBFCs).
- P2P Lending firms are obliged to maintain Net Owned Funds of Rs. 2 Crores.
- The tenure of the loans should not exceed 36 months.
- At a point of time you are only allowed to lend up to Rs. 50 lakhs to borrowers, across all P2P lending portals.
- You are only allowed to borrow up to Rs. 10 lakhs across all P2P Lending portals at any point of time.
- If you are lending money, you are not allowed to lend more than Rs. 50,000 across all P2P lending portals to a single borrower.
Things to know about P2P Lending in India
- Your authenticity and credibility is essential for P2P Lending
With P2P lending, you don’t have to submit an application to a bank or any other traditional institution. Instead, you’re submitting your details to a P2P Lending portal. You will be asked to submit relevant documents which will be reviewed and verified for authenticity. Once the P2P lending platform establishes that you are a credible person with a credible credit history, you can start participating in the borrowing process.
- Win win situation for both borrowers as well as Investors
P2P Lending platforms like i2ifunding pass on the efficiency gained in loan operations to both borrowers as well investors. Borrowers can get loans at affordable interest rates which would be cheaper than other options available to them and at the same time interest rates rates would be attractive to investors. Investors will be making more returns than bank fixed deposits and other fixed income options. Overall loan process is very smooth and completely online, so both investors as well as borrowers can do transactions sitting in their home.
- P2P Lending platforms go beyond traditional credit scores
Even though your credit score plays a big role, P2P firms look far beyond that. If you decide to apply for a peer-to-peer loan, the platform will create a profile for you including information about your credit score, debt-to-income ratio and other details. At i2i Funding, borrowers are graded according to their credit scores on a scale of A to F, allowing lenders to gain a fair idea of the credibility of the borrowers. Many lenders may pick prospective borrowers based on these ratings.
- Borrowers with no CIBIL score can get loans
If you have not taken any loan, it becomes very difficult to get unsecured personal loans from traditional financial institutions as credit score plays a big role in the application process. However, P2P Lending firms can help to get loans at attractive rates if your overall profile is good. When you create your profile, there’s plenty of other data involved – such as the loan purpose, salary, location, and more! This part of the application can be critical in attracting a lender or investor. An enticing application with all the details can attract investors even if you have no CIBIL score.
- The application process is completely online and hassle free
Applying for P2P loans is much faster and easier than applying for personal/business loans from bank. This is especially true because overall application process is completely online and you can apply for loan from anywhere. You don’t have to submit multiple documents and create lengthy business plans before applying for P2P loans. If you have all the documents ready, you can apply for loan in 15 minutes.
- Fast approval and quick funding of loans
With P2P loans, approval and funding is mostly quick and you can get money in your account within a week. But on some portals who do not have vast base of investors at times funding of loans may take some time. Because you have to wait until an investor becomes interested in your profile, this process can vary from a few minutes to a few days to even a few weeks. Better the profile, faster the approval and disbursal.
- P2P Lending in India is growing at very fast pace
A decade ago only a few people knew about P2P lending in India, but now it is growing at very fast rate and posing serious challenges to existing financial institutions. It is expected that P2P Lending in India will become $ 5 Billion industry by 2022 and it is estimated that India may become one of the biggest peer-to-peer (P2P) lending markets in the world after China and USA.
- Investors earn good returns on their investments
P2P Lending in India offers higher returns than most of other investment options. For example, the returns when you lend on i2iFunding can vary from a low of 12% to a high of 30%. This range is far higher than most other options – such as savings accounts (4-5%), fixed deposits (8-9%), or even the annual returns on the stock market over 5 years (sensex delivered 9.9%).
- It’s safer investment than you think
P2P Lending is far safer than it may seem from the outside. At i2i Funding, lenders distribute their principal amount into multiple borrower – so the risk is hedged and the investments are far safer. You are allowed to partially fund a loan by contributing even a small amount of money and these contributions are pooled with those of other investors to meet the borrower’s needs. I2I Funding also has a Principal Protection plan – which protects your principal amount in the case of a default. This protection can vary from 25% to 100%, depending on your choice, risk appetite and other factors.
- Your loans will be official and reported to Credit Bureaus
If as a borrower, you’re skeptical of P2P loans because the loan doesn’t come from bank, you ought to know – these are legitimate loans and no legally different than a loan from a bank as they are regulated by The Reserve Bank of India as mentioned before. In fact, your credit history will also include P2P loans, thanks to the latest RBI’s guidelines. Good repayment history will reflect in CIBIL and will improve your score.
When are you getting started?
P2P lending can be very efficient in terms of time and labor you invest. You can also get higher returns but as with any other form of investment it comes with its own manageable amount of risk. The P2P lending continues to boom in India and globally as well. Want in on the action? Get started on i2i Funding today!