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Peer-To-Peer Lending? Read this before you start

by Mariya Parackal
peer-to-peer lending safe

Are you planning to invest in in peer-to-peer money lending? As a new financial segment, it is important for your to understand just how the P2P model works before investing large sum of your money.

Here’s an exhaustive guide to help you get started:

What is a Peer-to-Peer Lending?

Instead of borrowing money from people, now Peer-to-peer or P2P has come up with the option to lend money. The P2P platform connects you to a group of individuals who lend you the money that you require.

The CEO and founder of Prosper, David Kimball says that P2P is an online platform where lenders are connected to the borrowers, and they can help people by lending them money they require.

Starting from an individual to a legal personality, a borrower can be anyone in between. 

Who is suitable for P2P lending? 

When it comes to taking loans, the most obvious place people run to are banks and NBFCs. Now you might wonder, who is suitable for the P2P platform?

Well, anyone can borrow from a lender of a P2P platform. If you have a new credit history, you are fit to borrow money from the P2P platform. 

What makes P2P different from other lending platforms is its way of approving all kinds of loans that regular financial organizations would otherwise restrict.

In P2P, the middleman does not exist. Hence, the work is carried out smoothly. Besides, the process that needs to be carried out for applying for the loan is pretty straightforward.

Where the NBFCs take a minimum period of 5 to 7 days to transact the loan, this time is significantly less in the case of P2P. 

Benefits of P2P Lending

The generation of P2P is on the rise for the following reasons:

Potentially high returns 

The previous financial data suggests that you can get a return of 8-14% from P2P lending, which is comparatively better than the returns of the standardized financial institutions. 

Recurring monthly interests 

In a P2P lending system, passive income can be generated in recurring monthly payments of interests. 

Creditworthy borrowers 

It is recommended that you lend money through vetted borrowers who possess a high CIBIL score. 

The low minimum starting amount 

The lending and added investment amount in P2P lending is comparatively low than any other. 

Risk-based lending options 

You are given a choice to choose your preferred lending option as per your goals and risk profile. 

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Considerations to follow when lending on P2P 

Start with small investments 

Instead of being greedy, go through all the warnings and instructions. If you wish to fill your pockets within a numbered day, you are sure to overlook the necessary information and land into trouble later. This is why it is important to go slow and begin within smaller amounts. 

Follow diversification 

Try to scatter your money among diverse borrowers. If you have to eliminate risks in P2P, the best way would be to spread your money among multiple borrowers. If you are confident, you can take the risk of investing 35K-50K and expect a return of up to 35% annually. 

Do not forget to go through the profile of the borrower. 

In most P2P companies, you will notice the borrowers are very low risk, low risk, moderate risk, high risk, and very high risk. The borrower’s profile would determine the rate of interest, the amount of loan asked for, and the period for which the loan has been taken. 

Check out the rate of the defaulter. 

The defaulter rate can be said to be the ratio of defaulters on a given platform and the ones that are important in choosing the company. These defaults can be possible because of issues related to capability. Always make sure that you check the defaulter rate that is displayed on the website. 

Keep track of older companies. 

Before choosing the platform for P2P, you need to look into the company and its age. The older the company, the better lenders do you get. 

Remember, the quality of the portfolio and the type of loan will determine how the P2P lending platform is growing. 

Although many people engage in P2P lending, yet there are two significant risks involved here. One is the individual borrowing the money can undergo delayed repayment.

Another problem is none of the money can be reclaimed, unlike in FSCSs. So, one can use the P2P lending platforms provided he is willing to face these two risks.

Popular P2P Lending Platforms 

Some of the well-known P2P sites include:

You can also learn more about the advantages of peer-to-peer lending business, which is becoming increasingly popular. Understand the risks and benefits if you are looking for investment opportunities.

Generally, borrowers and investors are linked via online platforms. This lending process involves online transactions, thus allowing the investor and the borrower to transact using the exclusive online platform. 

Whether you’re going to invest in projects or lending money, here are the best choices of top online lending platforms for you. 

If you are searching for creating an online lending platform similar to Payoff, we can help you build a similar one. We have an open-source, peer-to-peer lending software for businesses called SocialWallet.

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iScripts SocialWallet will help to create a fintech business similar to Prosper, Kiva, etc. SocialWallet provides both a Web Platform and Mobile App for the end-users.

The online lending platform connects people who want to borrow money with individuals and institutions that want to invest in consumer credit. 

If you are on the lookout for creating a similar deliverable application for your company, avail free consultation from our technical team at iScripts.

Check out iScripts SocialWallet

SocialWallet Live Demo

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