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Why is P2P lending gaining popularity in India?

By Shrestha Saha

28th Nov 2022

2 mins read

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As the Reserve Bank of India increased the repo rate to 5.9% on September 30, 2022, many popular banks and NBFCs have increased the interest rates for home loans, car loans, and personal loans. It’s no news that high loan interests ( apart from the bank’s lengthy borrowing process) make it difficult for any average-earning individual to borrow loans and fulfill their bucket list of buying a car or paying the downpayment of their home.

But, what if borrowing was made easy?

Considering banks have been the primary retail loan providers for many years, it’s only normal for you to trust them. But quite recently p2p lending has been gaining popularity in India as well as across the world.

So what is P2P lending?

Regulated by the RBI, peer-to-peer lending is an online financial platform launched in 2017, allowing a person to borrow a loan directly from the other person, eliminating the financial institution as a mediator. Also termed “ Social Lending” or “Crowd Funding”; P2P has gained immense popularity in India.

For instance, borrowing a loan from any financial institution involves high-interest rates as well as additional charges which make borrowing loans from banks and other institutions very costly. Additionally, the bank lends money by using the assets deposited by other customers to offer a loan.

However, in peer-to-peer lending, the borrowers are directly linked to their potential investor by the peer-to-peer app, giving the lender and borrower both options to analyze the profile as well as fund demand and lend as well as borrow as per their creditworthiness.

Hence, making peer-to-peer lending an easy and affordable way of borrowing as well as lending.

Why is P2P lending gaining popularity in India?

  • Peer-to-peer lending is relatively faster and hassle-free as compared bank loan system.
  • As opposed to the traditional loan application format, peer-to-peer has a larger database and is user-friendly which makes digital lending more convenient.
  • Since the whole process is carried on digitally with extreme security, the loan is approved within a minimum period and also requires less documentation, unlike traditional bank loans.
  • Interest rates compared to banks or other financial institutions are competitive, making buyers enjoy profitable advantages.
  • It rewards people with CIBIL scores and average-income people can easily get personal loans with the help of peer-to-peer lending.

Eligibility Criteria

Usually, this online lending platform is available to people of every age group. But the main beneficiary of this system is individuals with low income or CIBIL score and other individuals who are unable to borrow such high-interest rate loans from banks or an individual who do not have any asset to mortgage in order to borrow a loan.

How to get a Loan through Peer to Peer Lending System:

  • The interested borrower is required to register on the online p2p lending platform.
  • After registering the platform will evaluate the application and calculate the risk and credit rating of the user. Then the user has delegated the appropriate interest rate.
  • During the time the application is approved, the user receives the available options from the lenders determined on the basis of his/her credit rating and estimated interest rate.
  • The user can calculate interest rates from the options available and choose one of them.
  • After selection and loan approval, now the user s responsible for paying the periodic installments with interest till the time of maturity.

Gone are the days when we use to wait in a queue to inquire about a loan and get it approved. With peer-to-peer lending now borrowing loans is just like making a UPI transaction.

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