HomeMedia CenterPlanning to lend on a P2P platform? Avoid these 5 common mistakes

Planning to lend on a P2P platform? Avoid these 5 common mistakes

Lending money to someone, ensuring regular interest payments, and eventually the return of principal on time — it is a tough job. Sure, P2P platforms make the task a lot easier for lenders. However, first-time lenders on these new digital platforms still find the task arduous. Here are a few common mistakes you can avoid and make money on a P2P lending platform.

Chasing high returns

Interest rates as high as 35 per cent can lure you to invest in P2P lending. But lending with the sole objective of earning very high returns may not be a great approach. Investing only in high risk borrowers may backfire.

“Don’t forget that higher the returns, the higher the risk. Whenever you are investing in a new financial product, it becomes important to start slowly and gauge how you are succeeding in your investment plan. Always start with small investments across different products. After gaining adequate experience you can decide on how to build your portfolio for the long term,” says Bhavin Patel, Founder and CEO, LenDenClub, a P2P platform.
“A prudent approach would be to have balanced funds in a savings account, FDs, MFs along with instruments like P2P loans to ensure adequate safety as well as liquidity.Taking available funds, especially if you have no other savings, and investing on a P2P platform lured by the lucrative returns is a pitfall you should avoid,” says Dhiren Makhija, CEO, Cashkumar.

P2P platforms usually divide the borrowers in risk categories depending on their repaying capacity. A higher interest rate depicts higher risk of repaying while the borrowers with lowest interest rates indicates the least risk of defaults.

Lack of basic understanding

Yes, it is true that you can earn higher returns through lending money on a P2P platform. But do you understand how a P2P platform works; what are the dos and don’ts while lending money on a digital platform. If you haven’t bothered to check these basic factors, you may be in for trouble.

As said before, do not focus solely on higher returns. Also, you should try to learn how various financial instruments, including P2P, work before investing in P2P platforms, say experts.

“If you do not understand the basic aspects of P2P investments, you will not be able to judge where to invest, how much to invest and what you will receive. Proper research about the platform, products on offer and most importantly the numerous risks associated will help you to invest in the right way,” says Patel of LenDenClub.

Don’t focus on short-term returns

“Do not compare P2P with equity investments in the short term. This is a 36-month product. Over a long period the returns can be similar to equity,” says Mukesh Bubna, Founder, Monexo.
This is the most common mistake by investors. Though, the returns can be similar or higher than equity in some cases, it’s essential to understand how the returns are calculated.

Many investors tend to withdraw their monthly returns. Thus, missing out the compounding effect in their portfolio. “Any P2P lender should have a long -term view over a period of three to five years to start withdrawing the money. Then only would he be able to see the great returns on this new investment asset class,” adds Patel of LenDenClub.
Bubna seconds the approach and adds that, “Compounding effect will come only when the interest is reinvested.”

Lack of diversification

Little or no diversification can impact your net returns from the portfolio. It’s advisable to spread the risk by dividing the amount among many borrowers.

Ashish, a lender on Faircent.com, says, “When I first started lending, I had Rs 1 lakh in hand which I divided among 10 borrowers. Over the last two years, I have realized how much sense it makes to diversify. Today, I don’t invest more than Rs 2,000 per borrower. In some cases, I even invest as low as Rs 750 per borrower. I use auto-invest because it makes it convenient to invest in a large number of borrowers and use the reports available on the platform to keep a track of my borrowers and portfolio’s performance.”

Bubna of Monexo also emphasises on the “fractionalisation of loans”. He advises lenders to invest among spectrum of interest rates and not only go for higher interest rates.

Not mentally prepared for delays

Many lenders do not give attention to default rates. They are stunned when there is delay in repayments. It’s imperative for investors to understand sometimes there can be delayed. “Since the returns are on reducing balance and come in EMI form. Investors should be mentally prepared for delays, if any,” says Raghavendra Pratap Singh, Co-Founder, i2ifunding.

As per RBI, each P2P platform is required to disclose their delay and default rates, something which investors tend to overlook. Understanding these default rates will give investors a better idea of each platform’s risk. Investors looking at multiple platforms should try and draw correlations between the platform’s advertised average ROI and their default rates.

Credit: Economic Times

Read more at: https://economictimes.indiatimes.com/wealth/p2p/planning-to-lend-on-a-p2p-platform-avoid-these-5-common-mistakes/articleshow/66984239.cms


LenDenClub is India’s largest alternate investment platform which started operations in India in 2015. We have been helping investors diversify their investments beyond traditional investment instruments ever since.



The Reserve Bank of India does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by Innofin Solutions Private Limited, and does not provide any assurance for repayment of the loans lent through its platform.

LenDenClub is an Intermediary under the provisions of the Information Technology Act, 2000 and virtually connects lenders and borrowers through its electronic platform via the website and/or mobile app.

The lending transaction is purely between lenders and borrowers at their own discretion, and LenDenClub does not assure loan fulfilment and/or investment returns. Also, the information provided on the platform is verified or checked on the best efforts basis without guaranteeing any accuracy of the data/information verification. Any investment decision taken by a lender on the basis of this information is at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower, fully or partially. The risk is entirely on the lender. LenDenClub will not be responsible for the full or partial loss of the principal and/or interest of lenders’ investment amounts.


*P2P investment is subject to risks. And investment decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.

** Average value mentioned is the weighted average of returns received by investors

© 2023 LenDenClub by Innofin Solutions Private Limited | CIN: U74999MH2015PTC266499

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