Peer to Peer Lending (P2P) – A boon for borrowers in India
Anyone with the experience of approaching a bank to avail personal loan is aware of the difficulties. The banks typically reject loan applications for various reasons such as low income, no credit history, no savings account with that bank etc. They are also not keen to provide loans of smaller amount, for example below Rs. 50,000. Even if a bank accepts your personal loan application, it levies heavy penalties for pre-payment. And as for the money lenders, it is well-known the extent they go to harass the borrowers and sky high interest rates they charge which may go up to 100%+ in some cases.
Peer to peer lending (‘P2P’), a technology led alternative mode of financing, has been recently started in India to exactly address this problem. A P2P platform typically gets the borrowers funded in 12% – 25% range depending on their risk profiles in a hassle free manner.
P2P has been able to reduce the cost by bringing technology to the front like never before. They are able to cut down high overhead costs of running a bank and are able to match multiple lenders and borrowers in real time which is not possible in any of the prevalent legacy systems. On one hand borrower gets funded at the lowest rates as a direct benefit of increased efficiency, while on the other, individual lenders get interest rates higher than available on any debt investment. Hence, this is a win-win situation for both of them.
In common parlance, P2P refers to a disruptive technology led innovation which helps one to lend to real people to meet their real requirements. P2P is an established concept in the countries such as the US, the UK, Germany, China etc. It has been growing in leaps and bounds around the world thanks to an increase in the internet penetration and tremendous acceptability of e-payments. Even in India, there are a few serious players such as Milaap, Rang De, i2iFunding etc.
When it comes to borrowing online, there are many questions which come to one’s mind. Is it safe to borrow online? Will I need to submit many documents? Will there be any hidden charges? How long it would take to complete the process? A serious P2P player exactly addresses these queries. It provides the borrowers a platform where they can raise fund from retail investors directly. It empowers the borrowers to get loans quickly at the lowest possible interest rate in a transparent and hassle free manner.
Though it is true that good credit score and higher income help in getting lower interest rates, these are definitely not mandatory perquisites. A good platform reviews borrowers’ profiles on various parameters and gives a holistic credit score which is based on a number of other parameters such as education, job, debt burden, financial behavior etc. This helps the borrowers who are credit worthy but still unable to get loans from traditional financing system to get required loans at attractive interest rates.
The key role of P2P platform is able to get quality loans through thorough credit analysis of each loan. They should also provide both borrowers and lenders with requisite tools to track the loan to provide seamless experience. Overall, P2P would go a long way to Reserve Bank of India’s aim to increase financial inclusion and fill in the gaps where banks have faltered. The key is to – ‘Borrow Easily, Invest Safely’.