Is P2P Borrowing For You?
P2P lending provides access for first time borrowers and those facing challenges due to small ticket size and work profile issues
RBI has issued amended guidelines for Peer-to-Peer (P2P) lending platforms, tightening the involvement of and assumption of risk by NBFCs in the P2P lending process. A cumulative lending limit of Rs 50 lakh for individual lenders across all platforms has been enforced. With a ban on lender substitution and closed group mapping, the borrowing process has become more accessible and transparent (Closed group mapping in P2P lending refers to a system where borrowers and lenders are connected within a specific, exclusive network).
What does this mean for you as a borrower and should you opt for P2P loans?
Should you opt for P2P loans?
P2P lending allows you to borrow from other individuals via regulated NBFC platforms which match lenders and borrowers. It is a faster and more flexible borrowing avenue, offering competitive interest rates, and far more options in terms of repayment schedules and loan tenures. With the ban on mapping within a closed user group, you can now access a wider array of lenders, improving your chances of getting a loan. It is a good source for smaller borrowings such as loans for family functions, home renovations, or to fulfil personal aspirations.
Says Bhavin Patel, Co-founder & CEO, LenDenClub - a P2P lending platform, “Borrowing through a P2P lending platform provides access to personal and business loans, especially for those who may face challenges with traditional lending institutions due to small ticket size, work profile issue or first time borrower.” Pramod Kathuria, Founder and CEO of Easiloan - a home loans fintech, adds, “P2P is a good option specially for those with poor credit scores. It enables them to avail loans without getting exploited by payday lenders.”
Limitations
Says Patel, “While seeking P2P loans, a lot of focus should be on the platform. One should look at the size of the platform, amount lent on the platform and number of lenders available with the platform. Make sure the P2P lending platform is registered with the RBI before taking any loan.”
With the new RBI policy update related prohibitions on lender substitution, lenders may be a little more sceptical to give out loans. This could curb the previous ease of application and loan processing speeds. Barring NBFCs and P2P platforms from using their spreads to cover defaults, lenders will become the sole bearers of default risk. You may face stricter requirements and possibly higher interest rates now.
Says Rishi Agrawal CEO and Co-Founder of Teamlease Regtech , a compliance management software company, “We can expect a higher level of scrutiny from lenders as early exits are no longer an option. As such, loans will become long-term relationships, pushing out lenders looking for short-term investments that regularly need liquidity.”
The Rs 50 lakh cap on risk exposure of a lender, along with mandates for lenders to obtain net worth certifications will improve credibility of the lenders but could reduce the availability of lenders which could also drive interest rates up, and affect those of you looking for large, low-cost loans.
While P2P borrowing is an easy and convenient option, keep in mind, it is equally important to uphold the conditions of the loan and repay on time. All P2P lending platforms report your repayment data. If you delay your loans, credit bureaus will show an impact on your credit score.
