All you need to know about the Peer to Peer Lending Platform that helps you grow.
Introduction
The money crisis can come up at any time without prediction. No matter how much we save or cut on our expenditures, situations may arise where we apply for loans. In our daily life, such contingencies are normal. One gets money from banks or money lenders. Thus, it is essential to have a holistic consideration before making a confirmation. The Peer to peer Lending Platform is now gaining importance to tackle such difficulties. These platforms tend to offer swift and easy relaxation to borrow money for requirements which are for a shorter period. One may approach the Peer-to-peer lending platforms for buying consumer electronics, medical emergencies, repay credit card dues, home renovation, business loans, travel loans, or other such needs. This article will let you give you an overview of the Peer-to-peer Lending Platform and its benefits and drawbacks.
The Regulation of the Peer-to-peer lending platforms
The Reserve Bank of India regulates the Peer to peer lending platforms. It has, since October 2017, become obligatory on the part of all the Peer to peer lending platforms to apply for a license from the Reserve Bank of India to sustain their status and legality of lending money. There were many guidelines issued by the Reserve Bank of India for the proper functioning and working of the Peer to peer lending platforms. One such Regulation is that a borrower cannot borrow more than rupees 10 lakh across all the Peer to peer platforms similarly. The lender is also not allowed to invest more than rupees 10 lakh in the Peer to peer platforms.
Pros and Cons of the peer-to-peer platforms
Pros-
One of the benefits of the Peer to peer lending platform is that the simplicity of the procedure that is adopted for borrowing and investment. One can lend as little as rupees 5000. The Peer to peer lending platform closely scrutinizes the borrower’s profile does enable the lender to know the profile of the borrower before lending him any amount of money. This helps in taking proper decisions of lending and borrowing.
Cons-
A very evident con of Peer to peer platforms is loss of money in the default of the borrower’s payment. However, to relax the risk, it is advised to lend money to various borrowers and not to a particular class of borrowers. It is suggested to verify the borrower’s debt to income ratio while deciding to lend him any amount of money. It is also equally important to consider the borrower’s monthly income to understand whether he shall be able to repay the loan or not.
What are the major threats of Peer Peer platforms?
Despite the various benefits of the Peer to peer lending platforms, it has a dark side, just like any other matter. Following are a few major threats of the peer-to-peer lending platforms. It is advised to have a proper checking before approaching any peer-to-peer platform for lending as well as for borrowing.
Rising Chances of Fraud- One of the major drawbacks of peer-to-peer platforms is that there are significant fraud chances. People often fall prey to the fraud strategies that the applicants have put up. The applicants mostly provide a fake identity certificate to the Peer to peer platforms representing a false profile for borrowing.
- Sanctions from the RBI
There remains a substantial risk of being exposed to the sanctions from the Reserve Bank of India. It is pertinent to note that the Peer to peer lending platforms is currently e in applying for the license. In case the Reserve Bank of India does not approve of it, it may result in the breaking down of peer-to-peer platforms. This may consequently result in the recovery of money from the money lenders. This is a vision of Peer peer lending platforms that cannot be overlooked. If the sanctions are imposed on those platforms which have not legally obtained a license, the company gets dismantled, and there is no chance of recovery of money by the consumers. Thus, before approaching any peer-to-peer platform, please check if they have a genuine license or not.
2. Augmentation of bad debts of Borrowers-
There are chances of losing money as a result of the augmentation of bad debts of the borrowers. It is more often found that the borrowers take money from many money lenders to repay the prior debt. This sometimes results in the person becoming bankrupt as he fails to repay all the money he had borrowed. This results in the deterioration of the borrower’s credit profile which restricts him to get further money loans.
Conclusion
The Peer to peer lending platforms is undoubtedly an effective solution for the short term money crisis. However, it is suggested to have a proper understanding of the proper analysis of the terms and conditions for borrowing and lending. Before one approaches any peer to peer lending platform, one must go through all the guidelines before lending or borrowing money in the Peer to peer platform.
Also read — Why financial management is important and how can it help you grow?
