Let's Explore the Concept of P2P Lending
Updated: Nov 21, 2022
If you are heading towards seeking a loan from any financial institution, assume that they will take your official documents and your time, efforts, and a lot of mental peace. Mental peace is the most prioritized thing that you really want to save. Effort and time is something you have to give as quid pro quo.
What if I tell you that I have something which can save you from dealing with banks to get a loan?
It is P2P Lending!
What is P2P Lending?
A new concept emerges from the Fintech background that acts as a facilitator to lenders and borrowers. P2P lending is an online platform where one individual can lend money to a borrower who needs it.
It is a site where lenders and borrowers connect directly to each other. P2P platforms are in existence due to their beneficial features for both lenders and borrowers. Lenders can earn good returns, and borrowers can get money without destroying their mental peace and documentation process.
Trust me, in that small hall of banks, going from one counter to another is so tiring!
Lenders benefits
When talking from the point of view of lenders, risk-taking capacity is an essential part of investing. When we invest in the stock market or cryptocurrency, we first decide on our risk appetite.
Investing in P2P platforms works the same as in stock or crypto markets. It would be best if you decided on your risk-taking capacity and analyzed whether you want to give money as a loan or not.
The platform could give minimum returns of 12% to 30% depending on the borrower's credit score.
Risk to the lenders
The only risk that prevails in the market is the risk of default in principal or interest payment.
Benefits to borrowers
The advantages a borrower can receive in applying for a loan at the P2P platform are-
Individuals who urgently need money can get funds on the online platform. The documentation process is more speedy than financial institutions in India.
Individuals who have nothing to mortgage an asset can also get an unsecured loan.
Start-ups can get funded in such platforms as investors are looking forward to returns as interest and shares on equity.
The term of the loan, interest rates, and installments are negotiable as there is no intermediary between lenders and borrowers. They can negotiate at their convenience.
One can get a loan at lower interest rates if one has a good credit score. (More than 600 points)
Risk to borrowers
The only risk that a borrower can face is reducing credit score. P2P lending is a platform where you can get a loan without any security, leading to a sense of negligence in making payments. Irresponsible behavior can reduce your credit score and restrict you from taking a loan from banks and other financial institutions.
Some P2P lending platforms
Conclusion
Investing and borrowing both can be tiring processes. Investing requires a lot of research about the company. Borrowing can be really exhaustive as it involves a lot of documentation, formalities, processing fees, and security, P2P lending makes every step easy and fast.
If you are looking forward to applying for a loan or investing your money in an adventurous manner, give the P2P lending platform a chance.
Before taking any financial decision, consult a financial professional.