If you don’t want to borrow money from a brick-and-mortar bank or a traditional online lender, peer to peer lending(P2P) is an option worth exploring. P2P lending works differently from the financing you have received in the past. Here, you are not borrowing from a financial institution but rather from a private or a group of people who are willing to loan money to qualified applicants.
Apart from using it as a loan option these platforms are quite famous for the returns, which are usually in double digits, which is above that from debt-oriented mutual fund schemes. Usually, borrowers who aren’t able to avail funding from a bank mostly because of a low credit score opts for these platforms.
If you are planning to choose a loan from a P2P lending platform, here are some of the points to be kept in mind:
1. Before applying for a loan, the borrower has got to be eligible for taking a loan. Hence, one should read about the eligibility criteria of that platform, the least and highest amount that they provide, the locations that they cover, who they give loans, etc. If you’re trying to find a better limit of loan, determine the company’s upper limit, even though RBI has set a limit for a loan of Rs 10 lakhs to one person, many P2P lenders have their upper limit.
2. NBFC-P2P lending platforms are required to follow RBI guidelines. For example, be it in terms of security, privacy, disclosure of information, etc. Therefore, find out if the P2P lender is registered as NBFC-P2P with RBI or not. Also, these platforms need to inform about their loan repayments to credit bureaus. With these borrowers paying their EMIs on time, they will have a better CIBIL score, given that the P2P lender is RBI registered NBFC-P2P.
3.If you are in an emergency, and in a hurry to get the cash, ask the lending platform, about the time they have taken to disburse the cash. Usually, platforms claim to possess turn-around-time (TAT) of 2 to 3 days which might vary if the platform does not have enough lenders. Experts say that if the loan amount is above Rs 10 lakhs, one may not get loan amount even after waiting for 15 to 20 days.
4. Firstly, ask the lender if there are any kinds of additional fees attached to the loan. As an example, many charges processing fees, registration fees, etc. with the EMI amount which the borrower will have to pay. Experts say borrowers should account for all the fees which he/she will have to pay from registration fees to the final disbursal and then calculate the effective rate, which the borrower pays.
5. Also, ask the lender if they have any penalty and pre-closure charges. Although most P2P lenders don’t charge pre-closure, it is better to test if there are any.
