Peer-to-peer deviates from the typical lending process in which borrowers request loans through conventional financial institutions. Individuals can borrow money from others using a P2P lender via an online marketplace. P2P lending is a relatively new type that offers investors an alternative to traditional assets like stocks and bonds regarding earning returns. P2P loans are sponsored by private investors who sign up for accounts and choose which loans to fund, unlike large financial institutions that fund loans with huge pockets. P2P lending, in laymen’s terms, is a monetary agreement between a lender and borrower without the involvement of any financial institutions in between, such as a bank. The online company facilitating this Peer to Peer exchange will act as the risk mitigator between these two parties by adequately assessing their eligibility in these digital transactions.
The distinction between borrowing and lending on P2P platforms is that if one borrows money from a P2P Platform, then he or she can apply for a Loan of up to INR 10 Lakhs on P2P Platforms. All standard KYC documents, such as Aadhar Cards, PAN Cards, etc., will be required. Apart from the CIBIL score, P2P Platforms will use different indicators to gauge the loan seekers, such as past performance, stability, and intention of the borrowers who are evaluated through documents such as salary slips, ITRs, bank statements, balance sheets etc. After the P2P platform completes the above verification process, the loan parameters are set. These parameters are the loan amount, rate of interest, and loan tenure. After this, the loan will be granted and given within a few business days.
While for lending money on P2P platform, any person, firm, HUF society or external body with a valid bank account and PAN card can lend money on a P2P platform. Lenders can choose to invest any amount from INR 500 to INR 25 Lakhs on a P2P lending platform. If a lender wants to give an amount more than INR 10 Lakhs, they must produce a certificate from a CA certifying their minimum net worth of at least INR 50 Lakhs. Lenders are strongly advised to verify if the platform is registered as a P2P lender with the RBI.
Peer-to-peer financing, and more specifically, P2P platforms, have given Small and Medium-sized Enterprises (SMEs) an invaluable advantage by giving them a distinctive alternative with practical repayment alternatives. These platforms and their capacity to provide loans electronically have become more well-known due to the pandemic. Government restrictions and the use of blockchain technology have functioned as a driver for the growth of P2P platform trust.