Peer-to-peer (P2P) lending is a method of lending and borrowing alternate to the banking system which enables individuals to borrow and lend money without using an official financial institution as an intermediary such as banks and other finance provider.
‘Peer-To-Peer Lending (P2P): Meaning
Peer-to-peer (P2P) lending is a method of lending and borrowing alternate to the banking system which enables individuals to borrow and lend money without using an official financial institution as an intermediary such as banks and other finance providers. Peer-to-peer lending provides a direct platform to the borrowers and removes the middleman from the financing process but it involves more risk than the general scenarios as everything is done through online portals. P2P lending is also known as social lending or crowd lending or crowd funding.
Individuals and small businesses those are in need of fund generally opt for conventional method of financing, i.e. through the bank. All banks usually have certain norms and procedures for ensuring the credibility of a person before granting the funds. The banks run an extensive financial checks on the applicant’s credit history to determine if the person would qualify for a loan or not, and if yes, determines the interest rate that will be charged on the loan.P2P_Lending
Usually banks charge a very high rate of interest and their norms are also tight that some individuals may not be able to fit in their criteria of eligibility. P2P is an alternative to those individuals who want to avoid being charged high interest rates or whose files have been rejected for a loan application.
In P2P, there may be single or multiple lenders for one borrower and single or multiple borrowers for a single lender but monthly repayment has to be made to each of the individual sources.
How does it work?
Firstly, the lenders have to decide the amount of investment and the time frame for which they can invest the amount.Some P2P companies offer the option to withdraw the funds during the loan term also. But there may be a cost for doing this and the lenders have to wait until another lender comes in to replace.
Operation model in India In India, P2P lending platforms can be provided by a Company registered with RBI.The Companies provide an online platform and must adhere to the provisions of the Information Technologies Act as well. The borrowers and lenders needs to register