How many times it has been that you knock the door of a bank for a personal loan but to no success. Banks could drown you with the formalities and then, the high interest rates. Though the concept of money lending is not new but the technology is driving this transfiguration with P2P lending the new disruptor on the financial scene. It is being seen as an alternative of banking with the objective of financial inclusion. An innovation in itself which is only going to foster and encourage lending and borrowing in the future.
Now consider that one has the facility to borrow money at a cheaper interest rate than the normal market lending rate that too without a huge collateral. Am I dreaming? No? So this is what P2P lending is. Abbreviated as Peer to Peer lending, it is an entirely online service that matches lenders with borrowers.
The agenda of the P2P lending companies is to lend at a very competitive rate of interest in comparison to banks considering the fact that these companies can run at a lower operating costs than the banks, thus these online platforms have a potential to create a medium for attractive personal loans.
What is happening in a practical scenario is that a lender can earn high returns in the form of interest on personal loan that might exceed the archetypical forms of savings such as RD’s, FD’s and the borrower gets access to funds at a reasonable rate that he might have otherwise been denied by the standard financial intermediaries i.e. a bank. The idea is each of them get a better rate, the lender, higher than the bank saving account and the borrower, lower than the bank’s personal loan. In fact for borrowers there is not much evident difference as to whether they are borrowing from the bank or a peer, so they can bear to take their decision based on the interest rate offered and minus the hassle that might delay the funding part.
The interest rates set are generally on a mutual agreement between the borrower and the lender and there is a small token fee paid to the servicer (the platform) by both the lender as well as the borrower. Also the platform provides the service of collecting personal loan repayments and doing an overall analysis of the borrower’s creditworthiness along with the due diligence at the time of registration by the borrower and the lender.
In India, P2P lending is at a very nascent stage but is expected to be a billion-dollar market in the next five years. Though there are no credible resources but according to various newspaper articles close to 20 odd companies have launched the P2P platform in the past one year. Globally, according to a recent report by Peer2Peer Finance Association, the cumulative lending till the first quarter of FY-16 reached 5.1 Billion GBP from 1.2 Billion GBP in the year 2014, thus showcasing dramatic growth through the P2P platform.
So if you plan to raise money for a business or a personal need but lack collateral, P2P lending might be the door for you. It provides the level playing field for participants to interact with amongst each other on the same platform. It is the borrower and the lender who determine the market place and not the bank though the fundamental principles of paying and lending remain the same. So imagine applying for a personal loan by entering a few pieces of information into an online portal and getting your personal loan approved within few hours with low interest rates as compared to traditional banks, a simple application process and a very quick lending. This model is expected to expand not only in terms of market share but also in terms different products such as mortgage backed securities or secured personal loans which could be a big threat to the banks in the coming years.
For credit ravenous country like India, capital inflows through such a platform could drive better access to credit at the most reasonable rates ever seen.
So this is what Loanmeet ( www.loanmeet.com )is driving. Sunil Kumar, the founder, aims to grow this very new platform among the masses where potential lenders lend to potential borrowers. With approximately 500 lenders and 4500 borrowers already joined the Loanmeet revolution in such a short span, it is expected to have tremendous growth as an alternative source of credit in the years to come compared to banks, who have been tightening their credit standards and have had their reputation tarnished due to various crisis in the past. We at Loanmeet are here to help individuals accomplish their dreams via P2P lending.