08/07/2023 | 4 Comments

Peer-to-Peer lending has gained popularity in India in recent years. So, if you are considering P2P lending as an investment option or as an alternative to traditional loans, you must understand more about P2P lending and the benefit it offers to both borrowers and investors. Let’s get started.

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

Peer-to-peer lending or P2P lending is an alternate form of financing other individuals directly, eliminating the involvement of a financial institution as a middleman. P2P lending in India is generally done through online platforms like 13Karat, where the platform matched lenders with potential borrowers.

Advantages of Peer-to-Peer Lending for Borrowers

  • Quick Loan Approval

Borrowers can apply for loans on online P2P lending platforms like 13Karat and receive the funds quickly, usually within a few days. This is extremely beneficial for borrowers who are in urgent need of funds for various purposes, such as medical expenses, home improvements, debt consolidation, etc.

  • Flexible Loan Terms

P2P loans typically are known to offer flexible loan terms as compared to traditional loans. These may include shorter repayment tenures, lower interest rates, and no prepayment fees. This flexibility makes P2P loans an attractive option for borrowers seeking loan customisation as per their needs and preferences.

  • Access to Funding

P2P lending platforms often offer loans to borrowers who may not qualify for traditional loans due to a lack of collateral, credit history, or other factors. This helps marginalised or underserved borrowers like small business owners, immigrants, or students to obtain funding to achieve their goals.

Advantages of P2P Lending for Investors

  • Higher Returns

Compared to traditional investments like savings accounts and FDs, P2P lending has the potential to offer higher returns. P2P investing often acts as a source of generating passive income for investors. At 13Karat, investors can earn interest of up to 13% per annum on their invested amount.

  • Diversification

Investors’ funds are invested in a diversified portfolio of loans by the P2P lending platforms, which reduces the risk of default and increases the chances of getting positive returns. Investing in P2P lending also acts as a great way to diversify investors’ portfolios and safeguard their capital from the risks faced by traditional asset classes due to market volatility.

  • Transparency

P2P lending platforms like 13Karat offer investors transparency and control over their investments. Here, investors can get detailed information about the P2P borrowers and their creditworthiness and accordingly assess the risk and return of each loan.

Is Peer-to-Peer Lending Safe?

P2P lending can be a great investment option as it offers a higher return as compared to traditional asset classes like bank accounts, fixed deposits, etc. However, just like any other investment avenue, P2P lending also has its risks. The key risk of peer-to-peer lending is the risk of borrower default. However, P2P lending platforms practice a great extent of risk profiling and credit underwriting to mitigate this risk.

Choosing The Right P2P Investing and Lending Platform

Choosing the right P2P platform is very important for hassle-free transactions for both investors and borrowers alike. Hence, you must evaluate all P2P platforms before choosing the platform you wish to borrow from or invest in.

As an investor considering P2P lending, you must also go through the various fees, including investment fees, levied by different P2P platforms. At 13Karat, you can start investing in P2P loans without any additional fees, thereby earning more returns.

How Can You Invest in Peer-to-Peer Lending?

An easy way to start your P2P lending journey is to register on a peer-to-peer lending platform like 13Karat and start investing in P2P loans. Here, you can start investing with as little as Rs.500 in our thoughtfully curated investment options and earn risk-adjusted returns of up to 13% per annum.