Is P2P Lending In India Safe?

Aug 3, 2022

Is P2P Lending In India Safe?

We often lend money to others. Sometimes, it can be our friend in need for their new business or a family member who wishes to buy a new house. Even in business communities, peers lend money to each other when in need. Yet, most of this financing is based only on faith and is not backed by any guarantees or collateral.

The traditional loan process, with the help of technology, has been changing like every other part of our life. Peer to peer lending, often known as P2P lending, is the modern version of individuals lending to one another.

We’ll go into great detail on P2P lending in this blog, including what it is, how it operates, and whether it’s secure. We will also discuss if you should take part in peer to peer lending

What Is India’s P2P Lending?

Platforms for peer-to-peer lending, often known as P2P lending, link borrowers with credit from a large number of lenders. These borrowers are verified based on their creditworthiness and other crucial factors. Lenders invest their money with such as LenDenClub. Their money is divided into a large number of blocks and disbursed to many, different borrowers. The division of lender’s money and its allocation to borrowers is handled by LenDenClub’s AI-based algorithm. P2P lending is an attractive alternative for those borrowers who tend to avoid financial institutions because of their unfavorable interest rates on personal loans.

How Does P2P Lending Work?

P2P lending works through websites or online markets connecting lenders and borrowers through such channels. First, an investor creates an account with the LenDenClub app or website and deposits funds that he/she wants to invest. Your funds are distributed across a pool of borrowers’ on which you earn interest. The creditworthiness of these borrowers is checked through LenDenClub’s AI-powered infrastructure that takes into consideration over 200 various data points to understand the credit history of the borrowers.

Here’s a quick brief of the processes performed after you make your investments on LenDenClub:

  • Examine the borrower’s credentials and the risk involved
  • Divide the amount they seek into a large number of blocks. The hyper-diversification aspect can divide these blocks to as low as 1 Re. per borrower that ensures that your risk is diversified widely among a large pool of borrowers.
  • Source different blocks of the borrower’s need from separate lenders
    • Again, the AI-powered system kicks in here that ensures the distribution of funds is a smooth process.
  • Ensure that the collections from the borrowers occur well within the prescribed time limits and reinvestments go through in time.
  • You sit back and relax while you reap the benefits of compounding and enjoy the payments that happen at the end of your selected time-frame.

Is Indian P2P Lending Safe?

P2P lending falls within the purview of the Reserve Bank of India (RBI), which ensures that there is no major systemic risk in these platforms. This is because it is a type of lending. For example, any business that aims to offer P2P lending services must apply for an NBFC-P2P license with the RBI. Furthermore, if a platform decides to close its operations, the company’s board must proceed with a predetermined Business Continuity Plan (BCP) to safeguard the data of all lenders and borrowers.

Reasons to Consider Investing in P2P Lending

Indian investors have been looking at other investment choices besides traditional savings and fixed deposits. This is because of the country’s evolving digitalization and the simplification of processes to invest in diverse investment avenues to diversify their portfolios. Investors of the current generation have been seeking balance between safe investments and high returns.

With LenDenClub’s fixed maturity P2P product (FMPP), investors now have an opportunity to earn as high as up to 12% returns per annum. Such investment opportunities allow investors to earn above-average yields that are significantly higher than what FDs, bonds, or other fixed return asset classes can generate. As a result, lenders may consider participating in P2P lending formats for the following reasons:

Flexible Investment Tenures

With LenDenClub’s FMPP, investors now have the option to choose their investment time-frame based on their needs. You can choose any tenure from 1-5 years depending on the period of time you want to remain invested. Goal-based investing is also possible with FMPPs. If you have multiple goals with different time horizons, you can choose to create multiple FMPPs that addresses your need to plan your financial commitments independently.

The Power of Compounding

FMPPs unlock the potential for your investments to unlock the power of compounding. Since, your money stays invested for the time-frame that you select, your accumulated interest gets reinvested resulting in significantly higher yields at maturity. This ensures that your money works for you 24 x 7!

Minimized Risk

By dividing the money invested by lenders and disbursing it to a large number of borrowers, LenDenClub spreads the risk over a large pool and averages it out. LenDenClub also conducts a detailed research of each borrower profile and ensures that only those loan requests are listed that are genuine and safe.

Investment Simplicity

P2P lending is mainly an online procedure. This indicates that the entire process is handled digitally while evaluating borrowers’ credentials. And while repaying the invested amount to lenders. Conclusion

P2P lending can produce significant returns while providing passive income. Yet, like any investments, it comes with hazards and you should be aware of them.

You will gain more when your investment is spread over many investigated borrowers. This is possible if you invest using an app like LenDenClub that performs the same procedure to lower the risk.

To learn more about peer-to-peer lending, download the free LenDen app.

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