People borrow money for several reasons, and it is no longer a shame to have debt because it is common to use a credit card for any kind of purchases. However, not many of us would be familiar with the concept of peer-to-peer lending. Peer-to-Peer (P2P) lending is widespread for unsecured lending loans and has come a long way as a reliable financing alternative in the recent past. They are attractive, even in terms of the interest rate applicable.
So, what is this P2P platform?
A peer-to-peer platform is where people lend as well as borrow from one another. These platforms are opted by borrowers who are, usually, declined financing at a bank due to a low credit score.
The platform is known for the returns it generates than as a loan option. The returns in this platform are usually in double-digits, higher than the returns from debt mutual funds.
Also Read: Neo Banks—Would You Cheer for the Next Big Thing in Fintech?
What must you know about the P2P platform?
- Eligibility Check: The foremost thing you must do is to check the eligibility criteria of the platform, the minimum and maximum loan amount they provide, the kind of customers they deal with, and the locations they operate in. Approach them for a loan only if you think you satisfy all their criteria. Though RBI has set a limit of Rs.10 lakh per person, P2P platforms have their own upper limit set.
- Turnaround Time: If you are in immediate need of money, it is advised that you check with the authorities regarding the turnaround time, i.e. the time duration from the date of application to the loan disbursal. Usually, it takes a good 2-3 days; for a loan amount exceeding Rs.10 lakh, it is quite common that you have to wait for 15-20 days. Work around your schedule and lender choice based on the urgency and turnaround time.
- Total Cost of the Loan: Check with the lender regarding all possible fees related to the loan. It can be processing fees, registration fees, service charges, interest charges, and more. Upon finding out the details, sum up these charges with the total EMIs you will be paying across the loan tenure to figure out the total cost of the loan. Knowing only the interest rate will not help much. Also, find out if they have any penalties and pre-closure charges. Penalties may be charged if you miss paying your EMI within the due date, while pre-closure charges are levied if you wish to close the loan before the defined loan tenure.
- RBI Guidelines: NBFC-P2P platforms must follow the RBI guidelines to maintain security, privacy, information disclosure, collection, and other things. Therefore, it is recommended that you verify if the P2P platform is registered with RBI. These platforms are also required to send repayment information to credit rating agencies, such as CIBIL. Your disciplined repayment habits will get an additional appreciation in the credit score only if the agency is registered with RBI.
When a P2P lending platform is registered with RBI, it is more trustworthy, and you will have the government policies to guard you. So, what do you think about considering a P2P lending platform as an alternative to our banks?
For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in
