5 Important Things You Must Know Before Borrowing Money From P2P Lenders
P2P is a term used for peer to peer which is a platform where the people can lend as well as borrow from each other. Usually, where the borrowers are not able to get funds from a bank mostly due to the reason of low credit score opts for P2P platforms. P2P platforms helps those people who are in need of some money be it due to some emergency or any other reason. Such platform has become a reliable alternative financing option for those people who are looking to get unsecured loans quickly. This article will talk about the 5 important things that you must know before borrowing money from P2P Lenders.
The P2P platforms offer attractive interest rates. Other than the loan option these platforms are also know for their returns which are usually in double digits. They are higher than debt oriented mutual funds schemes. Usually when the borrowers are not able to avail the funding from banks due to low credit scores, opts for these platforms.
P2P Platforms regulated by RBI
The P2P lending platforms are regulated by the Reserve Bank of India (RBI) to protect the interests of the lenders and the borrowers. The RBI made it mandatory for all the P2P companies existing to apply for a license, to continue as a P2P platform, in October 2017.
And all those who are entering had to get provisional NBFC- P2P from the RBI to start operations in relation to this. This ensures that all the operational P2P are regulated or are waiting to obtain license from the regulator. The P2P platforms require to be regulated by the RBI to ensure that the rules in lending and borrowing are followed certainly.
Under these guidelines, the RBI has maintained a cap on lenders and borrowers on the P2P platform. The lenders are not allowed to invest more than 10 lakh across all the P2P platforms and similarly a borrower cannot borrow more than 10 lakh across all the P2P platforms. A same borrower can be lent more than Rs. 50,000 by the lender under the P2P platforms, at any point of time.
What are the 5 important things before borrowing money from P2P lenders?
The 5 important things that a borrower should know before borrowing money from P2P lenders are as follows: –
- The borrower has to be eligible for taking loan before he applies for the loan. Hence, the eligibility criteria must be known by the borrower of that platform along with the other details like the minimum and maximum amount that they provide, who they give loans to, the location that they cover and etc. if the borrower is looking for the higher limit of loan then he should find out the upper limit of the companies as even though a limit for a loan of Rs. 10 lakh to a single person is set out by the RBI, there do exist many P2P lenders who have their own upper limit.
- It is mandatory for the NBFC- P2P lending platforms to follow the guidelines of the RBI. For example, be it in terms of privacy, collection, security, disclosure of information and etc. therefore, the borrower must find out the if the P2P lender is registered as NBFC- P2P with the RBI or not. And it is also necessary for these platforms to inform about their loan repayments to credit bureaus like CIBIL, Experian etc. if the borrowers pay their EMIs on time, they will have a better CIBIL score, but only if the P2P lender is registered as NBFC- P2P with RBI.
- If a borrower is in an emergency to borrow money, he should check with the lending platform about the time they take to disburse the money to the borrowers. Usually, the platform claims to have turn- around- time (TAT) of 2 to 3 days which might also vary if the platform does not have enough lenders. However, one should note that it is possible that one may not get a loan even after waiting for 15 to 20 days if the borrower applies for an amount above Rs 10 lakhs.
- Another important thing before borrowing money from P2P lenders is that the borrower must check with the lender if there are any type of additional fees attached to the loan. For example, may P2P lenders charges registration fees, processing fees etc along with the EMI amount that the borrower has to pay. The borrowers should account for all the fees which he has to pay starting from the registration fees to the final disbursal and further calculate the effective rate which is has to pay.
- Lastly, before borrowing money from P2P lenders, the borrower must check with the lender if they have any pre- closure charges or penalty. Even though many P2P lenders do not charge pre-closure but it is advisable for the borrower to check before hand, if there are any. Hence, the loan agreement must be checked carefully and the borrower must learn about such charges which may have to be paid in cases where there is delay in repayment, change in the bank, check bounce etc.
The P2P lending platforms ease for the borrowers to avail loans even for small needs and increases exposure to unsecured borrowings. The P2P lending license offers an easy solution to borrow money for short term requirements. However, it is necessary for the P2P lenders to register itself with the RBI and operate in accordance with the rules and regulations of the RBI. Getting the status of NBFC and awareness among the people regarding the alternative mode of lending and borrowing has helped P2P platforms to witness a high paced growth. The borrowers must know the 5 important things before borrowing money from P2P lenders.
There have been a good number of changes in the finance industry, like the introduction of the peer to peer lending which is commonly referred as P2P lending. This type of industry is quickly gaining popularity in India, because of which the RBI has quickly recognized it as well.