Peer-to-peer (P2P) lending

Image Source: P2P Marketdata.com

P2P (peer-to-peer) lending Online models of crowd and social funding are used in peer-to-peer lending. Where people wishing to invest their money may connect with those looking to borrow. According to experts, "P2P lending has become much more widely used as a financing alternative or a result of the websites that facilitate it."

Since 2005, this platform has been accessible internationally. It has been granted the designation of "NBFC" in India and registered under the 2013 Companies Act. P2P lending is regulated by the RBI.

Peer-to-peer (P2P) lending- Borrowers can use P2P platforms to request loans for various purposes, such as starting a business, consolidating debt, or paying for education. Lenders can use the P2P platform to invest their money and earn a return on their investment in the form of interest on the loans they fund. P2P lending can be an alternative to traditional banks or other financial institutions, and it can provide lenders will the opportunity to earn a higher return on their investment than they might be able to get through other types of investments.

Advantages

There are several advantages to using P2P lending platforms for borrowing and investing:

1. Lower costs: P2P lending platforms often have lower fees than traditional financial institutions, which can make borrowing or invest through these platforms more affordable.

2. Greater convenience: P2P lending platforms are often available online, which means that borrowers and lenders can access them from anywhere with the internet. This can make the process of borrowing or invest more convenient.

3. More flexibility: P2P lending platforms may offer a wider range of loan terms and repayment options than traditional financial institutions, which can be helpful for borrowers who need to secure funding quickly.

4. Faster turnaround: The process of borrowing or investing through P2P lending platforms is often faster than through traditional financial institutions, which can be helpful for borrowers who need to secure funding quickly.

5. Potential for higher returns: Lenders who invest through P2P lending platforms may be able to earn higher returns on their investment than they might be able to get through other types of investment.

Disadvantages

some of the potential disadvantages of P2P lending :

1. Risk of default: As with any type of lending, there is a risk that borrowers will default on their loans, which could result in losses for lenders. P2P lending platforms may have processes in place to mitigate this risk, such as by requiring borrowers to provide collateral or by performing credit checks, but there is still a risk of default.

2. Limited regulation: P2P lending platforms are not subjects to the same level of regulation as traditional financial institutions, which means that there may less protection for borrowers and lenders in the event of problems with the platform or with a loan.

3. Lack of diversification: Investors who lend through P2P platforms may not be able to diversify their portfolio as much as they could with other types of investments. This can increase the risk of loss if one or more of the loans in their portfolio defaults.

4. Limited secondary market: P2P loans are not as liquid as other types of investment, which means that it may be difficult for lenders to sell their loans before they are repaid. This can make it harder to get their money back if they need it before the loan is repaid.

5. Limited access: Some P2P lending platforms may have restrictions on who can use their service, such as requiring a minimum credit score or income level. This can limit the ability of some borrowers to access funding through P2P platforms.

P2P is not entirely safe. However, the RBI increased the amount of funding for peer-to-peer lending for future investment in 2020 from 10 lakhs rupees to 50 lakhs rupees and borrowing limits for single borrowers are 50,000 rupees across all NBFC peer-to-peer platforms. The finding limit has been raised, allowing the peer-to-peer network to attract more users and borrowers. People can increase their experience if they feel more confident.