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All That You Wish To Know About Peer To Peer Lending


  Tue, Nov 29, 2016     written by : CSF-Team

Peer To Peer Lending

A young Smita was nonchalant about her finances and only wanted to enjoy life. It was only after her loan application was denied by almost all banks & NBFCs that she realised how her careless approach towards her creditors in the past had caused damage to her score. Today she struggled to find a lender to fund her project. But this time she was determined to turn overleaf and show a new side of her, by being a responsible borrower. The internet gave her a solution. P2P lending sites provided relief.

The young Indian generation is skittish and fickle minded. They are bubbling with unharnessed energy and have very high aspirations. Given a chance, they can reach beyond the moon. But the rocket of their dreams needs the fuel of money to take off. Unfortunately, due to several reasons a lot of people do not meet the lender’s criteria to be eligible for loans. Does that mean they must give up on their aspirations and hopes for the future? Well, the answer would have to be ‘yes’. But thanks to Peer-to-Peer, popularly called as P2P, lending site, they don’t have to give up on their dreams anymore.



What is P2P lending?

The name is pretty much self explanatory. Individuals, with surplus cash form a group to pool their funds in a common kitty. This pool of funds can then be used to lend to people, their “peers”, who looking for finance. Mostly those who have been turned down by conventional sources of finance turn to P2P funds.

A lot of people who have a poor credit history find it difficult to find a loan from mainstream banks and NBFCs. P2P lending websites come as a respite for such individuals. It also allows people with surplus cash to turn lenders and earn better returns on their idle lying money.

Ofcourse there are risks involved as the borrowers are those who have a disgraceful credit past and therefore they were unable to secure funds elsewhere. To cover for the extra risk, interest rates are higher. There are no grievance redressal systems in place. However, RBI has taken note of the growth in this segment and has decided to regulate this space. It will happen in due course.

How P2P lending helps?

Are you looking for a small ticket loan and the big guns have shown no interest to deal with a “peanut size” amount? Your credit history has scared your current lenders away? You repeatedly fail to qualify for a personal loan for low CIBIL score? If the answer to any of the above is affirmative then a P2P lending website is your answer. It is an ideal medium for small ticket loans. The tenure can vary from three months to three years and you can take a loan of upto 5 lakhs. The interest will certainly be higher than scheduled financial institution loans but atleast you will have the funds you need.

In order to borrow from such a platform, the borrower will have to register on their website stating the requirement. The website owners will perform a background check of your credit history, current employment status and employment history, social score, purpose of loan etc. They are similar to the checks done by banks and NBFCs but P2P lending sites are a bit lenient, especially because today they are not regulated by any apex body.

Borrowers are then classified into different pockets based on the risk they pose. For those who have a lower risk of default will have to pay lower rate of interest and similarly those with a higher threat of default will have to bear a higher rate of interest.

Borrowers are then classified into different pockets based on the risk they pose. For those who have a lower risk of default will have to pay lower rate of interest and similarly those with a higher threat of default will have to bear a higher rate of interest.

This platform also eliminates having middle men and babus who take commission for finding loans. It certainly is a better medium than having to deal with notorious loan sharks. Loans are processed faster and usually there are no pre-payment penalties.

Recapitulating

It our duty to guide and endorse the younger generation, as the future of this world in is their competent hands. Their dreams must not fizzle out due to absence of funds. One of the ways to contributing to a prosperous future is by educating them about the importance of a healthy credit score, of the various ways to care for their score and the distinct options of finance.

All some people want is a chance to turn around their fates. With the funds that come from their more fortunate peers, comes the chance to improve credit scores. A P2P lending site is basically a mini virtual market of sorts where the borrowers and lenders come together to do business. Although complete strangers lend and borrow money, but the concept has been fairly successful.

One has to assume the risks of business here too, but the site does try to take appropriate measures such as background checks, to make sure the risk is minimized. P2P is a healthy and valid source of finance for those who otherwise would have failed to be eligible for conventional loans.