P2P Lending or, or Peer-to-Peer Lending is a means of obtaining loans directly from an individual, leaving out the middleman(like a bank, or any other financial institution).It is a very recent and emerging concept and has already gained a lot of traction from prospecting buyers and investors.
P2P Lending platforms and websites work as a marketplace/ intermediate and connect people who are willing to borrow with those willing to lend.
How P2P lending works:
1. The investor creates an account on a peer-to-peer (P2P) website and deposits the sum of funds he wishes to lend out.
2. The borrower/loan applicant makes a profile, to which a risk group is assigned by the website.
3. The applicant is presented with offers for borrowing money from different investors and can select the one that best suits them.
4. All the monthly payments are handled through the P2P platform.
Individuals who have good credit, acquire loans at rates fairly lesser than what the equivalent banks or middlemen might be offering.
All P2P lending websites and platforms are duly regulated by the RBI under its guidelines. RBI clearly states that all p2p lenders are required to register for an nbfc-p2p license.
The limit for borrowing money for the applicants is 10lakhs, while the investors are allowed to put up to 50 lakhs of their funds up for lending on these platforms.
If you're searching for a way to borrow and lend money that eliminates intermediates, peer-to-peer lending could be the way to go. It is, however, important that all the risks are carefully assessed before approving any loans.