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What is P2P Lending? Introduction, Features, Advantages and Benefits

By Anurag Srivastva | 31 Mar 2020

Peer-to-peer (P2P) lending is a recent phenomenon in India and just about 13 years old globally. P2P lending enables individuals to directly obtain loans from other individuals through an organized P2P lending platform. This saves the lender and the borrower the hassles of an institutional intermediary and the paper work that accompanies. Here are some salient features of peer-to-peer lending

• P2P lending platforms directly connect borrowers and lenders. Such borrowers can borrow money at a certain interest rate for their personal or business needs depending on their credit rating
• For P2P lenders, this becomes a form an investment with an attractive return in the range of 25-30% per annum; much better than other forms of investment
• Normally, the lenders and the borrowers on the P2P lending platform have to pay a fee to the platform owner for the service of bringing them together

Benefits of peer-to-peer lending

There are some clear benefits that flow from P2P lending to the lender and the borrower.

• There are multiple P2P lending platforms so the borrowers and the lenders can make a comparison and choose the best p2p lending company according to their needs
• For the borrower on the P2P platform, this is a low cost and simple method for small sums of money. Paper work is minimal
• Once the borrower has completed the reference check formalities and admitted into the P2P lending platform, getting loans in future become routine
• For the borrower, time frames can be flexible and range from a few days to a few months. This makes it extremely convenient for very short term borrowings
• The most important aspect of P2P lending is that it is now regulated by RBI as a distinct financial activity. This ensures that buyers are not subjected to usurious rates and sellers see a degree of safety in lending on the platform. In fact, RBI now gives a separate license categorised as “NBFC-Peer to peer lending” to lend authenticity
• For lenders, peer-to-peer lending companies offer a good opportunity to park idle funds for short periods of time. Returns of 25-30% on any investment today are unimaginable on a sustained basis. That is the gap that p2p lending fills
• For P2P lenders, there is the margin of safety from two factors. Firstly, there is the RBI regulation that ensures the orderly growth of this industry. Secondly, the best P2P