Peer to Peer (P2P) is essentially an online platform which works with the motive of raising loans which are to be repaid with intrigue. The borrower may either be an individual or a lawful entity. The online platform may set the financing cost to be charged on the loans or it might be chosen commonly between the parties. Peer to Peer lending has become a primary and comfortable choice of most of the start-ups and entrepreneurs during the initial days of their business when they are looking for venture funding. On this stage, business people can without much of a stretch obtain money from people.
Peer to Peer Lending is a strategy for obligation financing under which people can lend or borrow money without the contribution of any monetary organization as an intermediary. Peer to Peer lending companies is directed by the Reserve Bank of India. They work online thus making P2P lending a cost-effective strategy. P2P lending platform is a smart way of lending or borrowing money. It has proven profitable for both the parties in such a way that lenders can earn profit by lending their money at a higher rate of interest while borrowers enjoy the benefit of lower rate of interest.
P2P lending stages are innovation driven organizations which are enlisted under the Companies Act. They go about as an aggregator among lenders and borrowers. On P2P lending stage, lenders and borrowers register themselves on the site. From that point P2P lending platform completes due diligence and affirm the applications for support in loaning/obtaining action.
For doing a P2P lending business, one needs to get license from the Reserve Bank of India. For getting a P2P lending license, a legitimate application is filed with the authority alongside the essential documents by the experts.
Characteristics of Peer to Peer Lending Platform
P2P lending model is making a huge impact on the activities of global financial market in fact many finance related industries are reshaping themselves from past few years by introducing new modules and lending services.
Custom designed P2P lending platform is the best option in contrast with old-style exercise of getting cash from banks as banks set aside long effort to endorse loans. Rather than moving toward banks and applying for credits, P2P lending stages can be utilized, where we just need to give essential data from the comfort of our home/office and within hours our advance will be prepared and approved.
- All the transactions on P2P lending platform is done online
- It is not necessary for lenders and borrowers to have a relationship
- Lenders have the option to freely choose the borrowers to invest in
- No need to negotiate interest rates or amounts
Benefits of Peer 2 Peer Lending
For Borrowers
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1
Low Interest Rates
The borrowers can profit the advantages of low loan costs when contrasted with banks and credit cards. At times decrease of about 35% has been seen.
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2
Fast Processing Of Application
Since P2P lending is done on the digital platform which makes the whole process of transaction fast and simple.
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3
Fixed Rate Of Interest
P2P lending platform supports fixed rate of inters even on encountering the cases of late payment. Hence, many borrowers find this platform attractive and beneficial option to go with.
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4
Lower Fees
P2P lending platform charge lower amount of fees.
For Lenders
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1
Higher Returns
By and large, the profits offered to the investors are higher, contingent on the kind of risk you attempt.
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2
Direct Communication With Buyer
The stage gives the lenders an alternative to legitimately speak with borrowers and concludes their arrangement with the borrowers.
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3
Diversification
Investors are flooded with variety of options to invest their capital into.
Peer To Peer Lending Has Some Cons As Well And These Are As Follows:
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1
For Borrowers
- Amount of loan is quite low in comparison to banks
- Often you experience more borrowers and less lenders
- Less Security
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2
For Lenders
- Regardless of whether the credit rating assessment done by the stage is dependable or not, is a worry. In this way the hazard related isn't sure.
- With the P2P business still in its incipient stage, it would be too soon to arrive at a complete resolution.
- Returns are lower in contrast with traded on an open market list finance
Funding Process under Peer to Peer Lending
P2P Funding Via Auction
The lender at the p2p commercial center will rival each other to finance the borrower credit necessity at most minimal loan fees. The borrower loan will be subsidized by the minimum 7-20 lenders depending the loan sum and each piece of the advance may have an alternate pace of premium.
Marketplace P2P Lending Model
In this model either P2P lending platform without anyone else or the money partners or a bank related with the stage will finish and guarantee the credit prerequisite of the Borrower. When this procedure is finished and the p2p loaning stage well offers the loan ID to intrigued moneylenders.
A Fixed Rate Auction
For this situation, intrigue sum is fixed; just the advance sum must be financed by the loan specialists. This model is precise than commercial center strategy.
Eligibility Criteria for Obtaining Peer to Peer Lending License
- Company must be registered in India
- It is essential for applicant to have technological, entrepreneurial and managerial resources
- So as to complete P2P lending platform, a candidate must have satisfactory capital structure;
- Proposed Directors must satisfy the fit and legitimate models
- There must be a legitimate arrangement for proficient Information Technology System
- A feasible Business Plan
- Thought process to serve in public interest
Types of Peer to Peer Lending Model
Consumer Lending
Loans for cars/weddings/holidays/home repairs/repayment of credit card dues are easily available.
Property Lending
This is made sure about P2P loaning against the first charge of the business or private property. The credit is obtained for individual home loans, Buy-to-lets, Residential restoration, and creating commercial loans. Though, this model does not have a strong fan base in India.
Small Business Lending
Small businesses asked for SME loans because of the following purposes:
- Working Capital/li>
- Business Expansion/li>
- Asset Finance
Procedure of Obtaining Peer to Peer Lending License
Any business unit whether Private Firm or Public Firm is eligible to commence the business of P2P lending, to begin they need to apply to RBI for the P2P license. For this, they need to fulfil the following:
- Organization ought to be registered in India as Private Limited Company or Public Limited Company with the principal motive of financing;
- Least net possessed assets of INR 2 crores.
- WebSite/Mobile App Work Flow
- The online application is accessible on RBI's site (COSMOS).
- Accommodation of printed copy of the application alongside joined documents will be submitted to RBI Office.
- The permit will be allowed simply after watchful review of the application and documents connected with it.
How does Peer to Peer Lending Platform Works?
On peer-to-peer lending platform, advances are taken by the borrowers from the individual financial investors (lender) who are eager to loan their cash to the borrowers on a concurred rate of interest.
On P2P lending platform, the profiles of the borrowers are shown, from where lenders can uninhibitedly pick the borrowers' profile and indulge in the process of lending money. It isn't important to have any connection among moneylender and purchaser.
It isn't fundamental that proposed borrower get full loan amount, he may get certain measure of what he requested from a financial specialist (investor). For the rest of the amount, the credit might be given by at least one investor on the P2P lending stage.
Minimize Risk and Maximize Returns on the Peer to Peer Lending Platform
In P2P Lending, borrowers are being furnished with the low rate of interest than those offered by the other money lenders in a chaotic division. Under this, lenders earn higher returns than what conventional speculation openings offer. Financing costs charged on the credits differ from one stage to other going from a level loan fee fixed by the stage to dynamic loan fees as settled upon by the borrowers and the moneylenders.
Ways To Get Benefit Of Returns
- To get the advantage of more significant returns, broaden investments.
- Benefit receives from the power of compounding and by regularly doing reinvestment payment.
- To limit default, partition by and large speculation and loan to various borrowers inside a similar classification.