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Interest Rate on P2P lending platforms
Since the borrowers belong to high-risk categories, defaults are high. Therefore, the interest rates are also elevated to counter the default risk. Here are some prominent P2P platforms in India that facilitate P2P lending.
|P2P Lending Platform||Interest Rate (% pa)||Loan Amount Range||Repayment Tenure||Registration Fees|
|LenDenClub||From 6.5%||25K to 500K||3M to 24M||750|
|Faircent||From 9.99%||10K to 500K||6M to 36M||500|
|Lendbox||From 12%||25K to 500K||6M to 24M||500|
|OMLP2P||From 10.99%||25K to 1000K||3M and 36M||100|
|i2i Funding||From 12%||Up to 1000K||3M to 36M||100 + GST|
|i-lend||From 15%||25K to 500K||6M to 36M||–|
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Why do the P2P lending platforms charge high-interest rates on their loans?
- The borrowers on these platforms are high-risk borrowers who are not eligible for regular bank finance.
- The higher the borrower risk category, the higher the interest rate
- The loans offered by these P2P lending platforms are unsecured. The lack of collateral makes these loans risky. So, the riskier the loan, the higher the interest rate.
Here are the benefits of P2P lending.
- The P2P lending process is quick and hassle-free. The borrower registers on the P2P website and gets connected to lenders ready to invest their funds on their lending terms.
- These platforms are online and tech-savvy. Hence, the turnaround time is minimal. Besides, there is less documentation with KYC and income verification processes carried out online.
- The loans available on the platform are unsecured. Therefore, there are no additional charges like charge creation, verification of security, etc.
- The P2P lending platform focuses on lending alone. Therefore, the distractions are less than in banks that cater to various other activities besides lending.
- Borrowers with low CIBIL scores who are otherwise unwelcome at banks can get easy loans on the P2P platforms.
- The RBI-imposed restrictions on P2P lending make it a safe lending and investment platform.
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Restrictions imposed by RBI on P2P lending platforms
- The maximum investment has recently increased from Rs 10L to Rs 50L per investor across all P2P platforms.
- The maximum exposure of a specific borrower across all P2P lending platforms is Rs 10L.
- The maximum exposure to a specific borrower by a particular lender should not exceed Rs 50K across all platforms.
Why do the P2P lending platforms provide loans to people with low CIBIL scores?
The CIBIL score is a broad indicator of the individual borrower’s credit profile. It is not a character certificate that a person with a low score is necessarily a defaulter or vice versa. Everybody knows that CIBIL scores are not necessarily accurate. There are umpteen instances of CIBIL scores presenting erroneous information. Of course, you can rectify them, but that should form the subject of a separate blog.
Banks blindly accept the CIBIL score as the gospel truth and do not entertain genuine borrowers with low scores. Instead, the P2P lending platforms adopt a more humane and individualistic approach because it is entirely up to the lender whether they want to lend to a specific borrower.
Therefore, the lender specifies the lending terms and conditions, and borrowers who accept them are eligible for funding. These factors affect the interest rate charged on the P2P lending platform.