How to borrow money through P2P platforms – Forbes Advisor INDIA
Personal loans are unsecured loans that help people overcome a sudden need for funds. People borrow money for a variety of reasons. To make purchases that they cannot immediately afford, such as gadgets or appliances, or to invest in their business. They may need money quickly for personal expenses like a wedding, medical bills, past debts, etc.
What is a personal loan?
Personal loans, mainly in India, are unsecured loans. In other types of loans – home or auto – a person would be required to keep some form of collateral or collateral against the loan amount, which can be garnished in the event of default. However, personal loans do not require any collateral or collateral. The lender cannot seize anything if the loan repayment is delayed or not paid at all. However, the consequence of non-repayment of the loan for the borrower is that their credit rating will collapse.
Although secured loans can only be used for the purpose for which they were taken out, such as buying a house or a car, there is no such requirement for personal loans. You can use a personal loan for any purchase or expense. It is enough to respect the conditions mentioned in the loan agreement and to make the repayments on time.
As these are unsecured, to be eligible for a personal loan, a person needs a good credit and financial history. Many deserving borrowers become ineligible for personal loans when they are assessed against the traditional “hard rules” of credit assessment used by banks and other financial institutions. This is where peer-to-peer (P2P) lending comes in.
What is the P2P loan?
The P2P loan is an alternative to personal loans. It allows people to borrow money directly from lenders without the need for middlemen like banks. In P2P loans, borrowers and investors come together in a digital marketplace where borrowers ask for money and lenders can fund them based on their risk appetite.
P2P lending eliminates the role of financial intermediaries as intermediaries. People don’t need to go to a bank, credit union, or online lenders when they can borrow directly from businesses. But when can we opt for P2P marketplaces? You can do this in the cases mentioned below:
- You want a loan that’s fast, convenient, and easy to apply for.
- You want to use a loan process with a credit scoring mechanism that goes beyond the traditional “hard rules” approach, thereby examining your ability to service the loan in a more holistic manner.
- You want a lower interest rate.
- You are looking for a contactless, online and technology-based approach to lending.
How it works?
P2P loans happen through websites or online marketplaces where lenders and borrowers come into direct contact. Here, a lender registers and adds the money they want to invest in an escrow account, which is then used to lend to borrowers. Likewise, the borrower registers on the platform and requests a loan with the required documents. The whole process is online.
Once the lenders and borrowers have entered the market, the platforms assess the risk and rate the borrowers while also monitoring the lenders. The platforms should also facilitate the listing of loans, financing and disbursement, as well as the legal agreement between the lender and the borrower. They further facilitate transactions between lenders and borrowers through an escrow account. Here, the P2P platform is the third party that takes care of the bond, the deed and the documentation. They do all the work, from collecting repayments to collecting loans.
How to get a loan from a P2P platform?
There are several peer-to-peer lending platforms in India, and you don’t have to settle for the first platform you come across. Here’s what you need to look out for when evaluating potential lenders:
- Understand the process and eligibility criteria of the platform. A good platform will display this information transparently on the platform.
- Evaluate the size of the platform. A platform with a huge base of lenders means more options for you. After all, the lenders will fund your claim.
- Each platform charges a loan processing fee. The amount differs for each platform. choose the one that suits you best.
- Like everything else, the repayment terms also vary from platform to platform. You can choose the platform that matches your needs. For example, some platforms charge a loan prepayment fee, while others allow it at no additional cost.
- You need to make sure that you not only match their eligibility criteria, but that your credit and financial profile is attractive to lenders. This is an open market, and the most creditworthy borrower will always be in high demand and get funding faster from lenders.
After finalizing a marketplace, the P2P platform will provide you with credit for the interest rate, fees, and repayment terms.
How does the loan disbursement take place via the P2P loan?
In the traditional setup, loan disbursement takes time with all documents and verifications, including checks based on an individual’s creditworthiness, authenticity of documents, etc. However, in the context of P2P, the time is greatly reduced.
Since the entire process is automated and technology-based, the time between request and disbursement should be shorter. It mainly depends on your creditworthiness and how much you need to borrow, as creditworthy borrowers attract interest from lenders and therefore faster financing.
As a consumer, you can benefit from higher returns from lenders and lower interest rates from borrowers as these platforms have lower overheads and do not make a margin on monthly payments or payments. repayments received from the borrower. Instead, they charge a flat fee for the services.
While P2P platforms ensure that the customer experience remains as seamless as possible with hassle-free procedures, taking out a personal loan is a huge financial commitment. You need to make sure that you pay the fixed amount on time every month. So, before taking out a personal loan, make sure you have a good reason for doing it and maintaining it well to improve your credit score.