Peer to peer landing is a new concept gaining ground across the
world in the area of personal finance. It takes seed from the simple idea of
helping people and something we see around us in normal lives. It is usual for
all of us as people to help people we know when they are in need of some money.
It could be your brother or friend or colleague who is borrowing money from you
or who you borrow money from. Peer to Peer loans
take route from this concept of helping out and in place of people you know
replaces it with strangers with validated profiles.
So here are some interesting things about P2P lending:
1.
As a lender, you can
choose to advance money to a single person or may people at once. Since P2P is
a crowd-funding concept, you need not lend the whole amount requested by a
borrower. For instance if person A has requested a Rs. 1,00,000 loan, he can be
funded by 10 people pooling in Rs. 10,000 each. If you have decided to invest
Rs. 1 lakh, you can technically put in Rs. 5,000 each in 20 loan requests at
different rates of interest.
2.
The Peer to Peer lending in
India concept is new but it is extremely popular in the west. There are
many people who happily lend or borrow using the P2P route in the USA and many
other countries including China. History has shown that there is little
delinquency as far as P2P method is concerned and people see it as a legitimate
and safe source of investment.
3.
There is an
interesting concept of a social score which is used in evaluating peer to peer
loan requests. Platforms like this, when offering P2P services often take
social profile details of loan seekers apart from personal and financial
details. The social profiles serve to indicate the behaviour patterns to
analyse the potential risk of lending to that person. All data is kept
confidential and the scoring is done through a smart algorithm.
4.
Borrowers on the P2P
platform are given a separate login-in where they will be able state their
‘case’ to the lenders. A borrower can state the reason for borrowing and also
give proofs and assurances for paying back the loan. This area can also be used
to give reasons for any anomalies in their eligibility criteria as stated on
the platform. It gives a lender additional reassurance and also helps
demonstrate the need/urgency of the borrower.
5.
The Peer to Peer
interest rates are normally extremely attractive for both the borrower and the
lender. The rates are decided by the algorithm on the platform based on the
details provided by the borrower. In the cases of a good profile, the interest
rate can be lower than even that advanced by banks. While this is a saving for
the borrower, it is a lessening of the risk for the borrower to keep some safe
investments. Even at this rate, a lender can still make more on his investment
as compared to an FD. By lending to a larger number of borrowers across risk
profiles, it is possible for a lender to get on average 16% to 18% RoI.
