Peer To Peer Lending India

Peer to Peer Lending Advantages and Disadvantages [Case Study]

The most successful small businesses are the backbone of a nation’s economy and they should have easy access to raise fund for continuous business practices. Since the banking sector works on stringent policies, these small business owners look for alternative finance and now there are stacks of new ways to perk up the working capital, sans the help of the banks. Peer to peer lending is a new concept, which binds the peer to peer lending and borrowers together, in a same platform.



Peer to Peer lending advantages and disadvantages - lenders perspective

Advantages
  1. Higher interest
Instead of depositing all the hard-earned money in a bank savings account , consider lending it through the peer to peer online portals for higher returns. For example, a 5 year bond with a fixed rate interest of an Indian bank offers 3% AER, while the same amount has the potential to earn 6.32% to 30% p.a. through a peer to peer website, on the same tenure.
  1. Diversification
Unlike the traditional financing, lenders can diversify their investment in different areas like an educational loan, business loan, home loan, personal loan, loans for public causes, etc.
  1. Freedom to commit
The lenders can set a term limit to lend money through P2P and withdraw their investment when they want. Some websites allow you to close contracts when there is another lender available to finance your existing loans.

Disadvantages
  1. Waiting period
Unlike banks, you may have to wait with your money, until a borrower arrives and this waiting time may not fetch any interest.
  1. No legal laws
The Indian penal code does not have any provision to govern this new peer-to-peer lending system. Therefore, you cannot claim if there is any default in the loan payment.

Peer to Peer lending advantages and disadvantages – Borrower’s perspective

Advantages
  1. Best alternative
The small companies that could not go through the formalities of traditional banking find P2P as the best alternative.
  1. Attract lenders
Polite requests, current financial data, and right bidding practices can fetch you funds than your credit score.
  1. Interest rate
Borrowers can bid for the loan in P2P websites. It allows them to choose the lender, who offers a reasonable rate of interest
  1. Quick and efficient
The loan approval process is absolutely quick. As it involves only the online process, reasons for delays like closing time, weekend, a government holiday, etc., do not exist in the P2P lending process.

Disadvantages
  1. Exhausting choice
Since the peer-to-peer web portals are filled with too many lenders, the borrowers may be confused to decide on. Looking for the genuine lender is essential.
  1. Wider space
Instead of the one-to-one contact with the loan officer or bank manager, you may be in a position to open your business to a range of lenders and explain to them about your needs. Being discussed in the public may take away the anonymity.
  1. No guarantee
Even if the request is approved, there is no guarantee that the fund will be transferred into your account, unless it actually takes place.



Peer to peer lending in India has grown drastically and many making huge money out of it. Investing in p2p business gives high returns and more efficient than stock markets.

This page has replies:

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