P2P lending, or peer-to-peer lending, is a financial framework where an online platform connects investors/lenders and borrowers without a financial institution acting as the third party. The absence of intermediaries, and the subsequent lower costs involved, make P2P loans an attractive investment opportunity.
With P2P loans, investors stand a chance to earn higher returns than other traditional modes of investment, while borrowers can easily get unsecured loans without the hassle of paperwork and collaterals that are usually required for conventional loans.
So, if you are considering P2P lending, here are some helpful P2P investing tips you must know.
5 Tips to Start Investing in P2P Loans
1. Research before you start investing
Before you start investing in P2P loans, it is important to study the P2P lending platform’s loan history and past performance. Find out details like their rules of investment, their default ratio, the credit risk and how they screen and evaluate borrowers, the late payment charges, etc.It is important to remember that different lending platforms will have different procedures for credit underwriting, late payments, and defaults. Hence, you must study all the options available for P2P lending before you invest.
2. Start slow
Once you have completed your research, the next step is to get some first-hand experience by investing in P2P loans. However, you do not need to rush and invest large amounts at the initial stage. Start with smaller amounts, even as little as Rs.500. Investing a smaller amount at the beginning gives you adequate time to understand the functioning of the P2P lending platform and prevents you from making costly mistakes.
3. Diversify, diversify, diversify
Diversification is essential to protect your investments and minimise the risk of defaults. When investing in P2P loans, follow investment strategies where your invested amount is spread across multiple loans to different borrowers. This way you will have the leverage to absorb any sudden loan default from a borrower.
4. Re-invest your returns
One of the biggest benefits of P2P lending is that you start earning from your investment from the next month itself, making it possible for you to re-invest your earnings back on the P2P lending platform. The reinvestment strategies offered by the online platforms help you to earn compounding returns on your P2P investment. So, ensure that you re-invest your returns to maximise the earnings on investment.
5. Use P2P Lending for a Passive Income
Investments in P2P lending have the potential to generate better returns as compared to a savings bank account or a fixed deposit. So, instead of keeping your money idle in a savings bank account, you can use it to earn passive income by investing in P2P loans.
The Best and Easiest Way to Invest in P2P Loans in India
You can now start your P2P investing journey easily with 13Karat and earn returns of up to 13% per annum.
13Karat is a new-age P2P lending platform where you can invest with as little as Rs.500 without any additional investment fees. To get started with P2P lending, you can register on 13Karat by completing your KYC online. Once you open an account with 13Karat, you can browse through our unique investment opportunities- 13K and 12K, you can choose the option that is best suited to your investment goals.
