P2P lending Investment is an alternate way to earn more interest than fixed deposits and it is suitable for maintaining part of your emergency fund with anytime withdrawal criteria. This blog addresses below questions that a reader might have,

• What is Peer to Peer Lending Platform ?
• Is P2P platforms regulated ? How do they work ?
• Best P2P lending platforms in India for Investment
• How you can use this platform & ROI ?
• Mutual funds Vs P2P lending Investment in India

Peer to peer lending platforms in India are for a long time but it is slowly gaining popularity with RBI regulations coming in to force and being recognized as NBFC.

NBFC is a Non Banking Financial company and this gives proper framework for P2P lending in India. For instance, you might lend money to your friend or relative with some interest. At times due to various reasons you may not get your money back and getting the principal itself will be a huge task. 

Peer to Peer Lending platforms comes to your rescue for these cases. If you are someone who believes you can help others lending your money and at the same time earn interest then this will be a solution for you.

Banks will not be able to provide loans to every individual who applies. And it can be for various reasons ranging from no income proof, no loan guarantor signature, smaller loan amount etc. Again Peer to Peer Lending platforms solves this problem by having relaxed norms which qualifies a person based on different criterias. From the borrower P2P platforms charge higher fees as they provide loans which are not done by Banks. 

How do they work ?

P2P platforms connect the Lenders with borrowers. There is a huge set of people who are not traditionally served with loans by the bank. These loans are small time loans for traveling, buying mobiles, Hospital needs etc and you can close these loans in a few months to 2 or 3 years. These P2P platforms fill this gap. 

Lenders are onboarded as Investors in their platforms. Borrowers are onboarded and selected based on their CIBIL or credit score and additional qualifying criterias. Which helps platforms decide whom to give loans.

Once approved, Borrowers need to repay their loans in equal monthly installments as decided in the beginning. Investor gets his principal amount along with Interest. They also have the option to divide the investment amount to be lended for multiple borrowers. 

P2P lending platforms across the world – 

There are numerous platforms across the world and here are the best one according to Investopedia,

Prosper

MyConstant 

Funding Circle 

These platforms are mostly suitable for individuals, small businesses etc.

P2P lending platforms in India & How they Work – 

Faircent was started in 2013 and numerous others platforms like Liquiloans, Monexo, Indiap2p etc in India were also started.

Till 2018, there was no regulations regarding this peer to peer lending & borrowing. Only in 2018, RBI passed regulations for these platforms. They are now recognized as NBFC which is  Non Banking Financial Company. 

These kind of platforms should not promise guaranteed fixed income and there are numerous other regulations they should comply.

Earlier Model – Earlier most of these companies onboarded lenders and borrowers separately. Lenders need to select the borrowers based on their credit score. As credit score goes low, the interest rate will move higher. Borrower with low credit score may default in the future and that needs to be handled by the lender. These platforms may help and assist in recovery of money. 

Recently, most of these platforms have enabled auto pay/invest option. After registering yourself as lender, you can enable auto pay mode. Now your investment amount will be spread and invested across the available borrowers who are in need of loan. There are few platforms, who still make the investors/lenders to choose borrower and invest on their own. 

Monexo offers anytime withdrawal account at 13% interest as conservative returns.

Faircent.com offers freedom plan which allows anytime withdrawal at 8.25% and certain investments based on tenor which can give upto 12% return.

LiquiLoans is another company offering good return on investment

How you can use ?

Use this Platforms as an alternative to savings account to keep your emergency corpus. Savings account can offer around 2.5 to 3% interest only hence this can be a good alternative. 

Small Business can take advantage of these platforms by investing their surplus money in current account. These current account will not generate any returns and hence this Peer to peer platforms can be a good alternative. 

Mutual Funds Vs P2P lending Investment – 

Debt Mutual fund offer single digit returns and if you want to withdraw within a year, you need to invest only in Ultra short term funds or Liquid funds. Both these funds provide returns on par with RBI interest rates. At present it can be between 3-5% in these 2 categories. 

Further if you are new to mutual funds, there are numerous schemes in debt funds itself which may be confusing. 

P2P lending can be an alternate way to earn more than fixed deposits/Ultra short term debt funds and it is suitable for maintaining part of your emergency fund with anytime withdrawal criteria. 

What do you think about these platforms ? Share your views in comments .