We are sure you have read the concept of peer-to-peer lending popularly known as p2p lending and reached this page as you are interested in knowing more and finally investing through the platform. We know you may be having many P2P Lending FAQs.
We at Vridhi Investment have the skin in the game. We have invested our own money through p2p platform. After being satisficed considerably, we have started letting people know about the concept. In this regard, we are posting below most of the doubts an investor can get on peer-to-peer. Have a through reading, and we will keep updating the unique question which may come in future. You can decide to invest or not to invest after reading all the faqs. Here we go:
- Is P2P legal?
- It is 100% legal and comes under the governance of the Reserve Bank of India. You can find the list of all licensed P2P companies in India on the RBI website.
- Who can register to lend and who can borrow on p2p platform?
- Any person can register to lend or borrow.
- A person can register either as a borrower or a lender. You cannot play both roles.
- The lender has to keep ready photos of Address Proof, PAN Card, and Cheque leaf photo to be uploaded during the account opening.
- What is the procedure for registering as a borrower?
- A borrower is basically taking a loan; hence the company will do all risk profiling before registering them and allowing them to borrow money.
- Just like banks and other NBF’s, P2P companies will also check the borrower’s profile, his CIBIL ratings, his history, and all other aspects. Many P2P companies also go the borrower’s home and office for physical verification.
- The P2P company may also assign their internal rating over an above the CIBIL for investors to make better-informed decisions.
- How is the lending done, and how is the risk diversified on Peer-to-peer platform?
- A borrower can come on the p2p platform to raise say Rs.100000/- for 36 months at an interest rate of 16% per annum.
- His loan requirement will be listed on the p2p platform with all risk profile details except the name and religion of the borrower.
- As a lender, you can lend him as low as Rs.1000/- or more. There may be a possibility that 100 people fund this borrower with Rs.1000/- each. This brings down your risk to just 1000 in case the borrower defaults. You can choose to lend higher also based on the profile.
- Assuming the borrower is fully funded with Rs.1 Lakh. His EMI payable to the P2P company will be Rs.3515.70 per month.
- The P2P company will start paying you your share of EMI Rs.35.16 on your 1000 for the next 36 months less the P2P fees.
- What are the charges the P2P companies charge?
- The company with which we have tied up charges 2.5% + the taxes which amounts to 2.95% in total.
- When you register through Vridhi Investment, nothing extra is charged, but you get the services of Vridhi.
- What can be my return on investment?
- There may be numerous loans listed.
- The rate of interest rate will depend on the profile of each borrower, also the internal rating of the p2p company.
- A borrower with a good credit score may borrow at 12%, and a borrower with a moderate profile may borrow at 20% or even above.
- As a lender, you can lend as low as Rs.1000 to Rs.5000 based on the profile. Hence, diversifying your portfolio.
- Assume your average return is 16%, less P2P fees 2.95% less any default if any, let’s assume its 2%, hence your Nett Return will be 16-2.95-2 = 11.05%
- What are the chances the borrower will default?
- Theoretically, anyone can default. Practically since all the borrowers are individuals, the chances are less. Also, since your portfolios will be diversified, the risk reduces to negligible.
- As an individual, a person will try not to default since it harms his Credit Score! No one will wish to harm his score for small amounts. P2P limits loans to a person between Rs.3 Lakhs to Rs.5 Lakhs. Practically most loans are just around Rs.1 Lakh. No one will damage his score for just a lakh.
- What are the chances that the P2P company itself defaults?
- Again theoretically, any company can go bust. Even banks have gone bust in India. Practically, since a p2p company is just a middle man between the lender and the borrower, hence the borrowers will have to continue paying the EMI’s as they are connected to the CIBIL.
- All the unused amount and the EMI’s are credited in an escrow account, meaning the company can use the amount only for lending purposes and not for their own purpose.
- All reports are available on the p2p website.
- What happens when a borrower defaults?
- As mentioned earlier, all borrowers are screened by the p2p company.
- In case a default happens, the next steps are taken as per RBI laid rules. You would have seen how recovery agents work 🙂 No one would take such pain for small amounts.
- The final step is filing an FIR and getting the borrower arrested.
- When the amount is recovered, it is paid back to the investor; else it becomes an NPA.
- There are no extra charges over and above the p2p fee. Costs of these steps are included in the fee.
We will keep updating the FAQ’s time to time based on the queries received.
To start, WhatsApp us on: 76-101-101-76, save the number as Vridhi Investment WhatsApp
Keep Photos of PAN Card, Cheque Leaf and Address Proof in the system. You will have to upload them while opening the account. After opening the account WhatsApp the Application Number to the above number for us to track the activation.