What Is Peer To Peer Lending And Best P2P Lending Platform In India?

peer to peer lending

Over the last year, there has been a surge in the number of new entrants in the peer-to-peer (P2P) lending market. According to Business Today, in FY2021 alone, Faircent, a P2P lending firm, has already disbursed ₹ 1145 crore loan, a near 24% increase in its disbursals. Financial experts claim that this boom in P2P lending is because of the attractive returns of 14-16% p.a. compared to other asset classes. 

This article will touch upon the basics of peer-to-peer lending, understand the underlying concept, and learn its functions and benefits as we list out the best P2P lending platforms in India. Read on.

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What Is Peer-to-Peer (P2P) Lending?

Peer-to-peer lending enables individuals (borrowers) to get loans directly from other individuals (investors) without the need for an intermediary (financial institution). P2P lending is also known as “crowdlending” or “social lending.” The P2P lending sites are now increasingly being adopted as an alternative financing method as they can extend financial inclusion globally. Financial inclusion has always been an issue in India because nearly 70% of the population resides in rural areas where organised banking facilities are unavailable. Moreover, individuals with low credit scores or those from low-income and small/micro businesses find it very difficult to get loans through traditional financing methods. These underbanked/unbanked people and businesses find P2P finance extremely accessible.

Understanding Peer-to-Peer Lending

Peer-to-peer lending platforms connect the borrowers to the investors. However, each P2P lending platform has different interest rates and terms. Usually, the interest rate depends on the creditworthiness of the applicant.

An investor opens the account with a P2P lending platform to deposit a sum of money to be given as a loan. When an individual applies for a loan through the platform, the interest rate will depend on their financial profile. The loan applicant can review multiple offers and accept one or multiple offers depending on their financial needs.

The money transactions, both money transfer and monthly repayments are handled through the platform. The entire process is usually automated, but some platforms allow the lenders and borrowers to haggle for the best deal.

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How Do You Get a Loan Through Peer-to-Peer Lending platforms?

  • Check out the reliable P2P Lending sites and then register to become a member.
  • The website that you have signed up with will serve as an intermediary. It will conduct all the formalities on your behalf. It will put you in touch with a potential lender who is willing to give you the required amount of money.
  • Before receiving the loan amount from the lender, there will be various checks on your background, personal details, employment status and credit history. In order to minimize the risks, loans are provided only to credible borrowers, hence the quality check is quite stringent.
  • Once your loan is approved, you will be provided with several options to choose from based on your credit rating and assigned interest rates.
  • You can evaluate the suggested options and choose one of them.

What are the Typical Functions of P2P Lending Platforms?

P2P platform is a marketplace for borrowers and lenders to connect. These platforms carry out the following functions:
  1. List the loans and facilitating financial transactions
  2. Complete multi-layered background checks on all participants
  3. Assess and update risk categories of all borrowers
  4. Assist lenders in the recovery of loans in case of payment defaults
  5. Enable collections
These lending platforms typically charge a one-time registration charge. Additionally, a processing fee ranging from 1% to 10% is usually charged for every transaction, depending on the platform and the loan amount.

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What are the Advantages of P2P Lending?

  • The platforms use advanced lending CRMs while onboarding customers to reduce the turnaround time and accelerate the customer acquisition rate. The peer-to-peer investing-borrowing transactions happen smoothly on the platform.
  • The P2P platforms use advanced technology powered by data-driven algorithms and analytics to categorize the risk profile of the borrowers based on their credit history.
  • This allows the P2P lending platforms to target their audience accurately and enables investors to gain access to a broader market tailored to their risk appetite.
  • The risk-reward ratio in P2P lending is better as compared to other asset classes.
  • P2P lending platforms offer high returns to investors and attractive interest rates to borrowers.

Advantages of P2P Lending platforms over Banks

Usually, traditional financial institutions and banks do not approve loans to individuals who have a poor CIBIL score and low monthly income. However, in peer-to-peer lending networks, the lender has complete discretion over who he wants to lend money to and who he does not.

On these platforms, people with a low CIBIL score and low income can get personal loans from multiple lenders at low interest rates and flexible terms. Additionally, since the borrowers can directly negotiate with the lenders, sometimes they get loans at a lesser rate than the banks.

Getting loans on P2P lending platforms doesn’t require a hard-core documentation process. With minimal paperwork, borrowers can avail loans from the lenders available on the website. The lending and borrowing process is based on the mutual understanding between the borrowers and the lenders.

P2P lending platforms offer an advantage over banks in terms of speed and simplicity of the process. Unlike the traditional banks, the processing time on these platforms is quick, and the borrowers don’t have to wait for a long time for the loan to get approved and disbursed.

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9 Best P2P Lending Platforms in India

Before you invest or borrow from a P2P lending platform, it is important that you understand the unique points of each platform. That’s why we’ve compiled a list of the best peer-to-peer lending platforms in India.

  1. The Money ClubThe Money Club is a company founded by ex IIT, INSEAD and UCLA alums to create a platform where 1 million people can join Money Clubs with other like-minded people to Save, Invest or Borrow money. With the help of advanced technology, this AI-driven chit fund platform has transformed the way chit fund is conducted in India. With the power of technology, the Money Club helps form trusted communities across India to ensure people save more, borrow at low-interest rates, and invest for maximum returns. With an average ROI of 25% p.a., Money Club is an effective investment tool to multiply your savings. Since its inception, it has created more than 13,000 groups/clubs and has more than 32,000 registered members/subscribers.
  2. Lendbox– Lendbox is located in New Delhi and is one of the leading P2P lending platforms in India. This RBI certified NBFC-P2P company has around 2,00,000 registered borrowers and 20,000 registered investors. With an average ROI of 24%, this platform can help you save more and create a stable passive income.
  3. Faircent– Faircent, founded in 2013 by Rajat Gandhi, Nitin Gupta, and Vinay Mathews, is a Gurugram-based P2P lending platform. Like any other P2P lending platform, it connects the borrowers and lenders directly, cutting out the middleman (financial institutions) to provide better interest rates for both.
  4. Finzy– In 2016, Abhinandan Sangam, Amit More, Vishwas Dixit and Apoorv Gowde founded Finzy. This Bengaluru-based P2P lending startup is a digital platform to help secure quick and easy loans at personalised rates based on the borrowers’ creditworthiness.
  5. i-Lend– i-Lend is an online marketplace that connects borrowers to lenders. Founded by Mukesh Kothari, Shankar VVSSB, and Niti Gupta in 2012, this Hyderabad-based P2P-NBFC platform enables lenders to get high returns on their investments and borrowers to get loans at attractive interest rates.
  6. i2iFunding– Founded by Abhinav Johary, Neha Aggarwal, Manisha Bansal, Vaibhav Pandey, and Raghavendra Pratap Singh in 2015, i2iFunding is a Noida-based fintech startup. This platform offers loans at attractive rates for borrowers and high returns on investment for lenders.
  7. PaisaDukan– PaisaDukan, founded by Rajiv Ranjan in 2018, provides a technology-driven platform to enable borrowers and lenders to have a seamless transaction. This Mumbai-based P2P lending startup is owned and operated by BigWin Infotech.
  8. LenDenClub– LenDenClub was founded in 2015 by Bhavin Patel and Dipesh Karki. This Mumbai-based P2P lending startup provides a platform for directly connecting the lenders with the borrowers. The platform has more than 7500 lenders and more than 25,000 borrowers.
  9. RupeeCircle– RupeeCircle, founded by Ajit Kumar, Ashish Mehta, Piyush Saurabh, and Abhishek Gandhi, is a Mumbai-based fintech startup. With the help of technology, it provides cheaper interest rates on loans and also offers higher returns for the lenders by not involving the intermediaries.

Join  2,70,000+ active members in the Money Club community

6 Best Reasons Why Money Club is the Best Online P2P Lending Platform in India

Why should you choose Money Club? Check out why Money Club is an effective tool for saving, borrowing and investing.

  1. Best Onboarding Process – Money Club is 100% online. With just one round of telephonic verification and basic KYC (paperless), you can join the Money Club without getting bogged down with massive paperwork.
  2. Best Customer Journey – The whole customer journey is a gamified experience. Once you build a good transaction history, you can easily move on to bigger and higher amount Money Clubs.
  3. Best Commission Structures in the Industry – Unlike traditional chit funds, our commission structure is based on the performance of the subscriber. It starts with 4% of the club amount and it can go down as low as 0.5%.
  4. Best Model for High-Frequency Chits – Unlike the traditional chit funds, our chit frequency is high as we also run clubs on a daily, 3-days, and weekly basis to help you earn returns in a short time or borrow when you have a need.
  5. Best in Risk Assessment – Our AI-driven online platform has robust underwriting algorithms that factor in the transactional, demographic and verification data of all the subscribers to assign the best-suited clubs to them and prevent possible defaults.
  6. Best Network of Trusted, Verified Users – All our members go through a robust line of security and background checks before they join the club. Moreover, each member only gets to proceed to higher clubs by building a good transaction history. This ensures that you are pooling money with a network of disciplined and trusted verified users.

How can you get a personal loan on a low CIBIL score?

Are P2P Lending Platforms Safe?

All P2P lending platforms come under the purview of RBI regulations. All P2P lending platforms are required to register for an NBFC-P2P license to provide P2P lending services.

The RBI has listed certain guidelines and regulations to ensure the safety of both the lenders and borrowers on the P2P lending platforms. Let us look at the 7 most important ones:

  • P2P lending platforms must become members of credit information companies and provide them with financial data.
  • P2P lending platforms cannot offer a guarantee on the loan.
  • The borrowers must be grouped according to their creditworthiness, income, etc.
  • The maximum loan which a borrower can take across all P2P lending platforms is up to Rs 10,00,000 (ten lakhs)
  • One lender can only lend a maximum of Rs 50,000 to the same borrower across all P2P lending platforms.
  • An aggregate exposure of a lender to all borrowers at any point of time, across all P2P lending platforms, shall be subject to a cap of Rs. 50,00,000 (fifty lakhs) provided that such investments of the lenders on P2P lending platforms are consistent with their net worth.
  • A lender investing more than Rs. 10,00,000 (ten lakhs) is required to produce a certificate to P2P lending platforms from a practicing Chartered Accountant certifying a minimum net-worth of Rs. 50,00,000 (fifty lakhs).
  • No loan can be sanctioned for a period of more than 36 months.
  • No loan can be disbursed unless the individual lender and all concerned participants have signed the loan contract.

Do P2P lending websites offer better rates than banks?

Important Points to Check as a Borrower

P2P loans are offered through online portals; hence it is essential to verify the authenticity and the reliability of the website before entering into any transactions. You must check the ratings and reviews of the website as well as the lenders and then make a choice.

Don’t take a hasty decision while borrowing a loan through P2P lending sites . Spend some to research several websites, understand how they work and then choose the P2P lending sites which gives you the maximum benefits.

Before sharing your important personal as well as professional information on the website, confirm that it is Symantec SSL certified to ensure the safety of your information.

You can bargain with the lender to get the lowest interest rate while borrowing the loan, Give the lender proof of your trustworthiness as a borrower and negotiate for a loan with low interest rates. Do not hesitate to do so.

Simply do not focus on the monthly EMIs that are to be paid. At the same time, you must check the loan tenure, processing fee if any and the total extra amount that you need to pay apart from the principal amount.

Before finalizing a deal with the lender, cautiously go through all the loan-related terms and conditions of the lender. Especially, go through the document to confirm that there is no hidden cost involved.