Most of us may have come across a situation at least once when we had to lend money to a friend or extended family member. Such loans are usually based only on trust, without any guarantee or collateral. However, with the increasing development in technology, this method of lending is changing. Peer-to-peer lending, or P2P lending, is a new modern and organised version of lending money to other individuals.
In this article, we will understand what P2P lending is, how it works, its advantages, and more.
What is Peer-to-Peer Lending?
P2P lending is an alternative to conventional loans offered by banks and other financial institutions. Peer-to-peer lending enables individuals to obtain loans from other individuals, without the interference of an intermediary.
The best P2P lending platforms in India, like 13Karat, aim to build a digital equivalent of ‘crowd lending’ or ‘social lending’ using a new-age website or mobile application.
How P2P Lending Works
The P2P lending process is fairly simple. The peer-to-peer lending platforms connect investors/lenders directly with borrowers. The platforms evaluate the borrowers based on their loan ticket size, credit ratings, risk assessment, etc. These P2P lending platforms decide the loan repayment terms and the interest rates to enable the transaction. On the other hand, to start their P2P investing journey, investors/lenders need to open an account with the P2P lending platform and deposit a sum of money to be dispersed as P2P loans.
Once the platform reaches a pre-defined threshold of investors and borrowers, the latter will be offered various loan options to choose from. The platforms offer highly flexible P2P loans which can also be broken into chunks or mixed up with multiple offers. The loan dispersal and monthly payments are taken care of by the P2P lending platforms.
How is Peer-to-Peer Lending Regulated in India?
Peer-to-peer lending in India is regulated by the Reserve Bank of India (RBI). The RBI has set up guidelines for the functioning of P2P lending platforms, mainly to control loan default rates and for investor protection.
Why Should You Consider P2P Lending/Borrowing?
P2P lending platforms offer credit to borrowers who are not entertained by conventional financial institutions due to various reasons. These loans are offered at flexible terms and lower interest rates. Borrowers can now easily avail P2P loans for various financial needs, like auto financing, home improvements, medical expenses, etc. Hence, for borrowers, P2P loans are a credible alternative to institutional and familial financing.
How to Invest in P2P Lending?
At a time when traditional financial institutions are offering around 5-6% on 1-year fixed deposits, the prospect of earning 12-13% per annum through P2P lending is very lucrative.
However, this does not mean that P2P lending is completely risk-free. Hence, you must evaluate all the pros and cons of P2P lending and then invest through the right P2P lending platform. Choosing the right P2P lending platform can make all the difference in having a smooth investing and earning journey.
So, if you are considering investing in P2P lending, you must evaluate various P2P lending platforms in India before you start investing in peer-to-peer loans. Don’t forget to check the transaction and investment fees levied by different P2P lending platforms. At 13Karat, you can start investing without any additional fees, earning more returns.
To start investing with 13Karat, you will first need to register with us and complete the KYC process. Once you complete the registration, you can choose from our carefully curated P2P lending products- 13K and 12K, and start investing with as little as Rs.500.
So, wait no more. Start your P2P investment journey with 13Karat now!
