5 reasons P2P has taken off in India
If you still don’t know what P2P (Peer-to-Peer) lending is, you might want to pay attention to this post.
With the Government of India laying a notable emphasis on the digitization of the country, online investments and loans have witnessed significant demand. As RBI has also recently released guidelines for the P2P sector, increasing number of people in the country are now attracted towards this method of lending and investing as now it has official backing.
As per reports, the SME and consumer loan market would cross the $3 trillion mark in the 2020s. Banks alone wouldn’t be able to fulfill this huge demand. It’ll be alternative sources like P2P lenders that would help meet the demand.
If you are still not sure as to why P2P lending is getting so popular in India, we have a list of 5 reasons that would make things clear.
For Borrowers-
- Better interest rate
Banks need to suffer from very high overhead costs like manpower and rising real estate rentals. These overheads easily add around 2%-3% to the borrowing cost. P2P lenders do not have such high overheads as most of them are operated online, and the funding is done directly by people who want to invest their money. As a result, P2P platforms can offer loans at a cheaper rate.
- Zero prepayment penalty
If you’ve ever taken a bank loan, then you might already know that there is a prepayment penalty if you want to prepay the loan. This penalty is often a reason for a lot of borrowers to not prepay their loans. However, most of the P2P platforms in India do not charge any such penalty. You get to prepay the loan just after a few months from the date of disbursement without any penalties or additional charges.
- Quick and easy processing
P2P lending is very different from traditional banking. If you are taking a P2P loan, the loan amount will come from an investor who wants to invest his/her money and earn interest in return. Thus, as compared to banks, the P2P platforms are better able to process your loan applications, and the chances of rejection are minimal. Also, these platforms use cutting-edge technologies to speed up loan processing and disburse funds in the least amount of time.
For Lenders-
- Unbelievable returns
For an investor, returns of 12%-25% might sound too good to be true. But P2P lending has made this a possibility with zero risks. Demonetization has significantly dropped the interest rate in FDs and in future, P2P is geared to turn into an excellent alternative to traditional investment vehicles. Moreover, if at all a borrower does not return the loan amount to an investor as promised, the P2P platforms also offer complete legal assistance to the lender for the same. Not to forget the fact that P2P platforms have stringent eligibility requirements for borrowers to avoid such defaults.
- Diversification
If you are a seasoned investor, you might know the importance of diversifying your portfolio. P2P lending can be a unique addition to your portfolio as it offers excellent returns with maximum security. The process is contract bound and transparent to make sure that the investor is always aware of where his/her money is invested.
As you can see, both borrowers and lenders can significantly benefit from P2P loans. While the concept has been around in India for quite some time now, it is only in the past couple of years that it has witnessed widespread popularity. With banks rejecting several loan applications for many different reasons, these benefits would continue to further increase the prevalence of alternative sources of funding like P2P in the country.