What does a person do when they seek credit urgently? Usually, they rush to a bank and apply for a loan. And thus begins the horde of processes and investment of time. After all, no-one can understand the misery of signatures and paperwork better than the borrower himself. Moreover, in a population as big as India, things become rather more difficult. What do we do when we face a problem? We move towards a solution— in this case, P2P Lending.

What is P2P Lending?

P2P lending stands for Peer-to-Peer Lending. It is a method of lending money that first of all – eliminates hefty paperwork, and second of all saves a lot of time. Essentially, it is a method of debt financing that does not include an official institution as an arbiter. It removes the middlemen (that is – the banks) from the process and deals only with the lender and the seeker.

Traditionally, if a person needed to borrow money, they would go to a bank. Then, the banks would perform checks on the financial history of the applicant to determine whether or not to qualify them for a loan. Moreover, a bank would apply typically expensive interest rates on the money lent, increasing the amount of money the borrower has to repay.

However, peer-to-peer lending gives you the privilege of taking loans from individual investors who are willing to lend their money. There are online platforms that help you negotiate with an investor over the amount to be borrowed over an agreeable interest rate.

It’s like a free market between lenders and borrowers – with both parties getting to choose who they’d like to connect it. The borrower may seek funds from multiple investors to lend the full amount. A loan may have multiple sources, and the interests are paid individually to each source in such cases. This way, it’s far easier to get a loan for the borrower, and far easier to make an investment for the lender.

P2P Lending in India

India happens to be in an ideal position to showcase the true potential of P2P lending. The country happens to have no shortage of both ambitious people seeking unsecured personal loans to grow themselves and their businesses, but also wealthy individuals looking to make smart, innovative investments.

With the increasing influence of digitization in India, the number of online loans and investments has witnessed a significant rise. After the release of the P2P sector guidelines by the RBI, people have been largely attracted towards this aspect of lending as well as earning, now that it seems to have ‘official’ backing.

According to reports, the demands of personal loans has gone up considerably. In fact, the consumer and SME loan market is expected to hit $3 trillion in the 2020s. All of this demand obviously cannot be fulfilled by banks alone – it’ll be India’s lender who will step up to meet this demand. Owing to the ease of borrowing it’s bringing to the people, P2P lending is a suitable option with an increasing market value.

As the number of loans increases, it creates opportunities for personal loan lenders to create a lending profile and earn higher returns over the money the lend. Investors in India are earning interests ranging from 12% to 35% across various platforms.  This is much more than other financial investment products or instruments.

Off late, India is recovering from the after effects of demonetisation which greatly increased the rate of deposition of money in banks, affecting the interest provided over savings. The stock market is uncertain as it has always been and real estate is in a decline.

Investors are looking towards P2P lending as an alternative investment. With the emphasis of the current government on cashless transactions and the evolution of Digital India, more and more people are moving towards borrowing money online – loans which enable quick processing and better communication between lenders and borrowers as compared to banks or any other source. Such developments are strengthening the roots of P2P lending in India.

Wrapping Up

• P2P Lending stands for peer-to-peer lending, enabling people in need of money to borrow loans faster without any hectic paperwork.
• Borrowers can negotiate with the investors over an interest rate for the money they lend. A borrower can seek multiple investments for the same loan.
• With demonetization, India is witnessing an increase the amount of money being deposited in banks. Investors are then channeling this money to worthy borrowers via P2P Lending. 
• Investors are earning interests ranging around 12% to 35% over online loans in India, which is much more than the earnings through other financial instruments.