5 smart aspects of Peer to Peer lending

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.

So these are some facts that should interest you and get you excited about the P2P loans space. As a small investor it is time for you to join a platform today and start investing. If you are a borrower, choose this smart source of funds to get your loan from friends you don’t know yet.