P2P lending is on the rise, and it caters to the funding needs of many people as it is highly convenient and offers various benefits to the borrowers as well as the investors. Here is a complete guide on what P2P lending is, how it works, the multiple benefits it offers, and how you can apply for it from the convenience of your home.
What is peer-to-peer lending?
Peer-to-peer lending, also known as P2P lending, is a famous option in contrast to taking out a conventional loan from the bank. Most of the P2P loans are personal loans which the borrowers use for several purposes, ranging from home improvement to debt consolidation.
How do the p2p loans work?
P2P lending works quite differently than the working of a traditional loan from the bank. In the conventional banking system, it uses the assets (deposits made into accounts by other customers) to fund the loan. P2P lending circumvents the need of an intermediary and matches the borrowers directly with the investors through its platform.
Who are P2P companies or P2P lenders?
P2P lending is also known as social lending and person-to-person lending. Firms that make P2P loans available are usually known as peer-to-peer lenders (even marketplace lenders). Lenders get to see and choose the loans they want to fund. Some P2P lenders place certain obligations on who can invest in their loans. While some firms are open only to qualified borrowers or accredited investors, others are open to all, as long as they meet the minimum requirements of the company.
How do P2P companies earn?
P2P lenders generate revenue by charging a minimal fee (such as late payment fees and origination fees) to the borrowers and taking a percentage of the interest gained on the loan.
What are the advantages of p2p lending?
There are many advantages of P2P lending; this can be seen by the rate of this industry’s growth. Most of the advantages come from the fact that P2P is entirely online and has all the benefits of an online service, some of which are as follows:
1. As mentioned above, P2P lending is wholly online and therefore, you need not go to the P2P lending company. This saves your time and money of traveling and waiting in long queues.
2. P2P lending is entirely transparent and therefore both the parties can see where their money was deducted. Also, there are no hidden charges or registration fees.
3. P2P lending has simplified digital documentation and requires minimum documents. Since it is online, all you have to do is scan the documents and upload them for approval.
4. P2P portals provide their customers with a performance tracker, where the customers can see their updated status on a visual dashboard. This crucial segment is very tedious to gain in a traditional banking system.
5. In P2P lending, accounts reconciliation and monthly collections are done automatically, adding to the convenience of both the investor and the borrower.
How to apply for a peer-to-peer loan?
Compared to a traditional banking system, the application process for P2P loans is straightforward. The major steps are as follows:
1. For a borrower, the portal asks for basic information which also includes the KYC documents.
2. After providing these documents, the borrower has to submit bank account statements and income documents.
3. The application will then get approved within a few minutes.
4. Upon approval of the loan, the execution of the loan agreement begins.
5. The loan amount is then disbursed into the loan account.
6. The borrower can either pay the EMI manually. Alternatively, it gets automatically deducted from the borrower’s account.
The portal calculates the borrower’s risk and return factor from their credit algorithm and then assigns a rating to each of them. This rating helps investors to choose a borrower as per their interest.
How to invest in P2P lending?
If you are an investor wanting to invest in P2P lending, then you need to follow these steps:
1. Register yourself on the portal and submit your KYC documents.
2. The portal will have pre-rated borrowers ready for you to select. You can select your borrowers manually. Certain portals even allow you to create a portfolio and select borrowers automatically. You have the power to control your funds by deciding if you want to use all your funding on one borrower or distribute it across several borrowers.
3. You can then invest your funds through a prepaid offline wallet or a secured online payment gateway.
As you can see, you can apply for it quickly and get the funding in a few days. But you need to make sure that you choose the P2P lending portal wisely. Research about the portals and only select it if it is reputable and authorized. This will safeguard you from any fraudulent borrowers or investors, and provide you with maximum security.
