RBI allows lenders to finance larger amounts on P2P platforms

For borrowers and lenders using peer-to-peer (P2P) platforms, the RBI has given reasons to cheer. The regulator has increased the lending cap for each individual lender from the current Rs 10 lakh to Rs 50 lakh. You can borrow money for short-term requirements (medical emergency, business loan, repay credit card dues, etc.) as well as invest money to earn higher rate of returns on these platforms.

Restricted lending

However, a lender cannot give more than Rs 50,000 to the same borrower across all P2P platforms, at any point in time.

Abhishek Gandhi, Co-Founder and CFO of P2P lending platform RupeeCircle says, “We had been asking the RBI to reconsider the limit on P2P lending for a long time. This move is a big positive for all P2P companies and investors.”

Bhavin Patel, Co-Founder and CEO of P2P lending platform, LenDenClub says, “This enhanced investment limit of Rs 50 lakh will attract high net worth individuals (HNIs) to explore P2P lending as a new alternative investment option. We believe even a small exposure to P2P investment will improve their portfolio-level returns.” To existing investors, this will give them the ability to diversify and invest further when they have surplus amounts.

Easy loans, high interest

P2P lending platforms connect borrowers with individual lenders. Such borrowings from P2P platforms are unsecured loans and interest rates are higher for borrowers compared what banks or non-banking financial companies (NBFCs) charge.

You can register on a P2P platform by filling an online form, pay the non-refundable one-time registration fees of Rs 100 to Rs 1,000 and upload the scanned copies of documents (ID, address proofs, salary slips etc.)

Once registration is completed, P2P risk assessment team verifies your profile and evaluates your risk profile. If qualified, the borrowers' profile will be listed with the loan amount required.

To get start lending on these platforms, you need to register with similar details as are provided by borrowers.

The P2P lenders team will approve your account after verification, within one working day. You can then start lending.

The key factors that lenders must check while registering on P2P lending platforms are the credibility of P2P lending platforms, ease and simplicity of lending and check the defaulter rate on the website.

The minimum interest rate charged to borrowers is 10.99 percent per annum, while the maximum is 36 percent per annum. Rates vary as per borrowers’ credit profiles and requirements.

P2P platforms charge a processing fee of three to five percent from the borrowers and a proportion of the investment amount from the lender after the last EMI is received successfully from the borrower.

Major risks of lending on P2P platforms

In case a P2P lending platform still is in process of applying for a NBFC-P2P licence from the RBI, but decides to shut the operations, there is a substantial risk that you will not get all of your money back. Also, there are some P2P platforms not registered with the RBI and claim guaranteed returns on lending in advertisements or their websites.

Sapna Tiwari, Co-founder and COO, Rupeewiz Investment Advisors says, “Consumers need to be aware of these false promises by such risky lending business and losing their money.”

Ashish Apte, CEO at AAA ResearchOne Financial Consultants recommends, “On P2P platforms, diversify your investments across multiple borrowers and lend small amounts to a single borrower to reduce default risks.”

There is also the risk of losing money due to rising bad debts of the borrower listed on P2P platforms.