What is P2P lending? How to borrow money via P2P platforms? – Advisor Forbes INDIA

Personal loans are unsecured loans that help people meet a sudden need for funds. People borrow money for various reasons. To make purchases 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, settling past debts, etc.

Sometimes people borrow money from friends and relatives and sometimes they go to bank or non-bank financial institutions. If you need a personal loan, here’s what you need to know.

What is a personal loan?

Personal loans, mainly in India, are unsecured loans. In other types of loans – home or car – a person would be required to keep some form of security or collateral against the loan amount, which can be seized in the event of default. However, personal loans do not require any collateral or collateral. The lender cannot seize anything if the repayment of the loan is delayed or not repaid at all. However, the consequence of non-repayment of the loan for the borrower is that his credit score will drop.

Although secured loans can only be used for the purpose for which they were taken out, such as buying a house or an automobile, such a requirement does not exist 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 in due time.

As these are unsecured, to qualify for a personal loan, an individual needs a good financial and credit history. Many deserving borrowers become ineligible for personal loans when assessed based on the traditional “hard rules” of credit reporting used by banks and other financial institutions. This is where peer-to-peer (P2P) lending comes in.

What is P2P lending?

P2P lending is an alternative to personal loans. It allows people to borrow money directly from lenders without the need for intermediaries like banks. In P2P lending, borrowers and investors come together in a digital marketplace where borrowers request money and lenders can fund them according to 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 you opt for P2P marketplaces? You can do this in the cases mentioned below:

  • You want a loan that is quick, convenient and easy to apply for.
  • You want to use a loan process with a credit review mechanism beyond the traditional “hard rule” approach, examining your ability to service the loan more comprehensively.
  • You want a lower interest rate.
  • You are looking for a contactless, online and technology-enabled lending approach.

How it works?

P2P lending is done 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 into an escrow account, which is then used to lend to borrowers. Similarly, the borrower registers on the platform and applies for a loan with the required documents. The whole process is online.

After lenders and borrowers register in the market, the platforms assess the risk and rate the borrowers while also vetting the lenders. 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 bonding, deed and 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 to look for when evaluating potential lenders:

  • Understand the platform process and eligibility criteria. A good platform will display this information transparently on the platform.
  • Assess the size of the platform. A platform with a huge lender base means more options for you. After all, it is the lenders who will fund your application.
  • Each platform charges a loan processing fee. The amount differs for each platform. choose the one that suits you best.
  • Like every other aspect, the refund terms also vary from platform to platform. You can choose the platform that suits 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 faster funding from lenders.

After you finalize a deal, the P2P platform will provide you with credit for the interest rate, fees, and repayment terms.

How does loan disbursement work through P2P lending?

In the traditional setup, loan disbursement takes time with all the paperwork and checks, including checks based on an individual’s creditworthiness, authenticity of documents, etc. However, in the P2P framework, the time is considerably reduced.

Since the whole process is automated and technology-based, the time from application to 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 funding.

As a consumer, you can enjoy higher returns from lenders and lower interest rates for borrowers because these platforms have lower overhead and don’t make a markup on monthly installments or repayments. received from the borrower. Instead, they charge flat fees for the services.

Who do P2P loans help?

P2P lending uses technology to directly connect individuals willing to lend their surplus to businesses and individuals in need of cheap and fast loans. It tries to bridge that credit gap by providing access to fast, low-cost financing to meet your personal or business needs.

P2P loans can be a boon for you, especially if you are:

  1. New credit or have limited financial records
  2. Medium or small business owner
  3. female borrower

How can P2P lending help borrowers?

There are several reasons why P2P loans can help you get credit when you need it most and on terms that work for you.

  • Unsecured loan products: If you are already reeling from a mortgage or other financial pressures, it may not be possible to provide collateral to take out a loan. P2P loans offer collateral-free loans that could help you manage your cash without putting a strain on your assets.
  • Credit scoring enabled by Analytics: The credit scoring algorithm uses new-age data points evaluated on over 120 parameters. Thus, it is more efficient with greater accuracy, so even those with limited financial and credit histories have a fair chance of getting a risk assessment.
  • Low cost loans: As borrowers and lenders interact directly with each other, monthly installments (EMI) received go directly to the lender and the P2P platform retains no margin. Technology-driven operations reduce the cost of underwriting and other platform overhead, resulting in lower-than-market processing fees. These factors reduce the cost of the loan for the borrower.
  • Convenient and fast loans: When you need a quick loan, P2P lending is a good option. P2P platforms have transparent online processes that ensure faster turnaround time. Even during the pandemic-induced lockdown, when bank visits were not possible, online and contactless P2P lending operations ensured continued access to credit for those who needed it.
  • Customized products to meet your specific needs: Using new age analytics and data points such as borrower digital footprints, P2P Lending has been able to create customized products that cater to various occupations, gender, demographics, and more.
    So whether you need a personal loan for your wedding expenses or to deal with a lack of working capital in your business, P2P loans could be the solution.
  • Greater ability to take risks: If you are one of those borrowers, who could be considered high-risk, the chances of you obtaining credit from traditional financial institutions are negligible. However, free from banking heritage, driven by young entrepreneurs and lenders with a greater appetite for risk, P2P lending might be an option for you.


Although 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 must ensure that you pay the fixed amount on time each month. So, before taking out a personal loan, make sure you have a good reason for doing so and maintain it well to improve your credit score.

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