Considering giving your house a cutting edge makeover? Or need money to make a downpayment for the vehicle you’ve dreamt of? Is there something that may replace a costly Credit card? The answer is yes! A platform which is known as p2p lending has taken a place which suits those who need short term lending.
P2P lending is a crowdfunding model (to a great extent on the web) where individuals are hoping to earn returns and thus lend their money to the borrower without any financial intermediary. The idea is based on savers getting a higher rate of interest by lending out their money instead of putting their money in saving bank account, and borrower getting funds at a comparatively lower rate of interest.
Peer to peer lending transaction happens on the online platform where the borrowers and lenders register themselves. However, before allowing either party to transact, due diligence is carried out. Also, the p2p credit you receive can be used for a different type of purposes from home improvement to loan for your business — no such restriction which you usually see on the bank loan.
Moreover, there is lots of difference between P2P lending and bank credit. From lenders point of view the difference is when you deposit cash in bank then bank uses this pool of money for lending it to different parties, and you never get to know that your amount is being used for what purpose however in case of Peer to peer lending you will know precisely what your amount is being used for.
Benefits of P2P lending
As we have already discussed that P2P loan has the edge over orthodox bank credit, we will be discussing several benefits of Peer to peer lending.
Zero Prepayment Charge
If you have to take any loan from any bank then you must be aware that in case you need to do any prepayment (prepayment means paying the loan before total pre-decided period) then it is always chargeable, and the reason for being it answerable is that bank loses its interest. In the case of P2P loans, there is no such charge over prepayment.
Loans for every need
Normal Bank loans are available for specific purposes like the commercial, vehicle, home, etc. however, P2P loans can be availed for any purpose like even funding your vacation. These loans are also available for a small amount like Rs 50,000.
Short repayment time
The biggest attraction for this type of Credit mechanism is a short repayment term. The duration of the loan can be from three to 36 months. Whereas the period for loans like a personal loan, it will be for the period of one to five years.
Faster processing time
The process for documentation as well as the time is taken to disburse the loan is a lot quicker in p2p lending as compared to borrowing from the Bank.
The whole disbursal procedure hardly takes around 24-48 hours to post the verification on the credit-worthiness of the borrower. On the other hand, Bank loan may take 5-7 days to disburse the loan.
Banks work on a branch model, and it’s not very easy for them to give small ticket loans. P2P credits have more adaptability than bank loans. You may get a higher sum on P2P in spite of a lower rating underneath 750 if the lender is satisfied post the credit evaluation. The borrower is assessed based on capacity, stability, and the intention to repay, which may reflect in his bank transaction statement and salary slips.
Zero paper process
Standard bank loan requires an extended processing time with lots of documentation; however, the process of P2P is an entirely online process where you can easily share documents needed through the internet and even through your mobile phone.
Availability of lenders
The biggest challenge which is being faced by a new borrower is that he/she needs to contact the branch where they have a bank account with. In the P2P process, every borrower can quickly get in touch with a variety of lenders through one platform and then can choose to apply accordingly.
Most of the loans available over this platform are unsecured and given to borrower without any collateral for the amount.
Interest rate is not decided on basis of Credit score.
A credit score is allotted to every individual who is an indicator of your creditworthiness. Every bank checks this credit score and offers a rate of interest accordingly. Over the P2P platform, these loans are also provided without a perusal of credit score.
Peer to peer lending regulations in India
Peer to peer lending India is now also governed by Reserve Bank of India as these companies will be treated as Non-Banking Financial Companies; thus, all norms of NBFCs will be applicable over these companies. RBI will be releasing more guidelines in detail to regulate P2P lending in India.
As discussed in detail about P2P lending it a beneficial platform not only for borrowers but for lenders also who have ample money in their bank account but do not want to go through the hassle of analyzing for better returns. Currently, it is not being watched much by Government, but as it is expanding exponentially, very soon, the Government will be announcing rules and regulations to govern this platform.