Peer to Peer Lending has been catching up in India as high return investment option. P2P Lending platforms connect lenders with borrowers looking for unsecured loans seamlessly through their online platforms. Overall process is completely online, which helps P2P Platforms to save on overhead costs and which helps lenders to earn High Returns on their Investments as compared to at raditional financial institution.P2P Lending Platforms like i2iFunding take utmost care and do stringent credit evaluation of each borrower to verify the creditworthiness of the borrowers. Even after taking all the precautions, a default may occur. In addition, most of these loans are neither guaranteed nor secured by any collateral. If planned properly and carefully, P2P Lending can be a very lucrative investment option for investors to earn higher returns better than many traditional investment options.
If you plan to lend on P2P platforms for higher returns, you must consider the following aspects:
- Lend only on RBI Registered P2P lending Platforms:
The RBI came out with regulations for P2P Lending platforms in October. So far only 13 players have received a certificate of registration (CoR) from the RBI to conduct P2P Lending operations. Some players like i2iFunding have been in this business for past 3-4 years and they have now perfected their credit evaluation process, collection and recovery process etc. So, before lending, check whether that platform has received CoR form RBI and since how many years that platform has been running P2P Lending operations.
- Start Slowly and Cautiously
For most investors, Peer to PeerLending is a new concept. One should not be in hurry to earn high returns, otherwise you may overlook various risk factors associated with the investment. If you do not understand the risk associated with an investment option, it is always better to start with a small amount. It is prudent to understand the fine nuances of lending on P2P Lending platforms before going for bigger investment.
- How reliable and transparent is the platform?
Before investing on any P2P lending platform, you should thoroughly check its past loan performance and credentials. You should check the number of loans disbursed, default rate, number of lenders among other things. If lot of borrowers are available and they are not getting funded, it means lenders do not have confidence on that platform. You should compare the recognized P2P lending platforms before lending higher amounts. All registered peer to peer lending platforms must disclose the performance of their portfolio to ensure transparency. There is a possibility that the data is not complete.
- Collection and Recovery Process
As loans available on P2P Lending platforms are unsecured loans. There is probability that default may happen. You should ask and carefully review how the platform handles a default by a borrower to recover the loan amount. Whether platform will take the responsibility of recovery or you will have to do on your own. Whether any fees would be involved or not? Evaluate the process for regularizing outstanding payments and the effectiveness of their current recovery procedure.
- Borrower’s Details and Credit Evaluation Process
Last but not the least, you should always inquire about credit evaluation process being followed by the P2P lending platform. What all information they verify, what documents do they check, whether physical verification is conducted or not. You should get yourself fully satisfied with their borrower selection and verification process. Most robust platforms, transparently display information about borrower, their personal details, education, professional and financial details along with comments from their credit team. Platform like i2iFunding.com displays most exhaustive and accurate information of borrowers to lender so that they can make an informed decision. As an investor, you have the right to know these details before making P2P Investment. Ask for the details if they are not mentioned on the website.
Investors should try to understand the different risk categories to get an idea of the expected returns they can get from the platform. Investors should keep in mind that High Returns Investment also means higher risk. Do not restrain from lending on P2P platforms but do a proper due diligence beforehand and lend only on a platform which is RBI registered and meets your requirements.