What is P2P lending? Everything you need to know about P2P lending

Aug 4, 2022

All you need to know to start out in P2P lending

What is P2P Lending?

P2P lending (peer-to-peer lending), as the name suggests, is a concept in which money lenders lend money to their peers. The system removes the role of a financial institution, such as a bank, as an intermediary. Instead, P2P lending platforms act as facilitators for the transfer of money. One can call it the uberization of banking.

Uberization is the term given to the ecosystem where anyone can be a provider of services. We have seen this trend in content creation, where anyone can make creative content and upload it on online media for others to watch. Any person who believes he has the right knowledge about a topic can write on Wikipedia. Any property owner can upload their property on Airbnb for people seeking a place to stay. A similar disruption has been brought into financial services by modern-day fintech companies. Technology has made this disruption possible!

Anyone with a mobile can become a money lender on P2P lending platforms and can effectively lend to many different individuals or businesses, sitting at home. The evaluation of causes into which lenders’ money goes has become extremely simple with the help of the digitization of financial data. P2P lending platforms use this vast financial data to assess every individual request for money.

Why is it gaining momentum?

Quest for high-return investments

Modern-day money lenders have been seeking more attractive investment options with higher returns. Traditional investment options well-liked by our previous generations, such as fixed deposits, provident funds, and post-office saving schemes, surely give safe and returns. However, amid the rising inflation, these returns alone are not enough to lead a life. Imagine investing in a bank’s fixed deposit with an interest rate of 5–6% for five years. But, if the inflation hovers around 7% throughout this period, it will have eaten up your returns and more at the end of five years. Also, unlike their previous generations, young consumers are not ready to wait for years to get single-digit returns on their money. They want quick and high returns. Stocks, crypto, and mutual funds offer higher returns. However, these investments are volatile and are dependent on global market trajectories. P2P lending offers an attractive investment option for such people, by offering a high-return, low-risk investment option.

Growing credit needs that are not usually serviced by banks

India is a vast country with a huge population with a variety of credit needs. With the economy growing, there has been a rise in private consumption. Compared to their previous generations, young Indians are more consumerist and less hesitant about spending money on experiences and goods. Small ticket loans are on the rise owing to such demand from young consumers. Banks and financial institutions cannot meet such financial demands.

It is also tough for a large number of MSMEs to get loans from banks mostly because such institutions have their own internal lending criteria. But, we can’t deny the fact that these enterprises drive our economy.

Here is where P2P lending comes into the picture. Fulfilment of such credit needs enhances private consumption, which is crucial for any country’s economic growth.

Simplicity of investment

Technology has made investing in P2P lending simple. One just needs to register on the platform, complete the KYC, deposit money, and choose their tenure.


When you choose to invest in any asset class with high returns, such as equities, cryptocurrency, mutual funds, or even real estate, you need to evaluate your investment thoroughly to as the risk involved. This takes a lot of work. P2P lending makes this aspect simpler. Although it does not eliminate the risk factor, it minimises your risk by spreading it across multiple borrowers. Thus, you share the risk on a particular loan with a lot of other lenders.

Key Features of P2P Lending

Use of technology

When a money lender invests their money in LenDenClub, their investment goes into servicing only those loans that have successfully passed through the platform’s evaluation comprising 200 data points. The platform executes this procedure with the help of its AI-based interface.

Hyper-diversification of risk

Hyper-diversification is a lending technique that LenDenClub has implemented in their lending processes as a part of their risk-mitigation strategies. LenDenClub’s AI-based mechanism divides your investment into small amounts, some as low as ₹1 and disburses it to a large number of borrowers.

Small capital is enough to make you a money lender

You can register on a P2P platform with small amounts and start investing. On LenDenClub, you can start your investment journey with an amount as low as ₹10,000. Imagine being able to lend money for interest!

Hassle-free, high-return investment

You get returns on your investment annually. This amount gets reinvested in the system in a hassle-free manner, if you choose to remain invested, and gives you compounded returns. LenDenClub offers returns up to 10-12%* per annum.

Flexible investment period

Your money remains invested for the period of your choice. At LenDenClub, you can remain invested for one to five years. If you want liquidity, you can stay for one year. If you desire higher returns, you can remain invested for five years.

RBI’s regulations on P2P lending platforms

The Master Directions for NBFC Peer to Peer Lending Platform issued by the RBI in 2017 regulates P2P lending in the country. A P2P lender must carry a registration certificate from the RBI. LenDenClub is an NBFC-P2P, registered with the RBI. Participants in a P2P lending platform can be a company, a society, a firm, a Hindu undivided family, a body of individuals, or an individual. The maximum amount a lender can lend across all P2P platforms is capped at ₹50,00,000 by the RBI. The monetary authority increased this amount from ₹10,00,000 to ₹50,00,000 in 2019, giving necessary impetus to P2P lending in the country.

Tax on returns earned through P2P lending

In P2P lending, investors earn income in the form of interest on the amount they lend. Similar to the interest earned on any other instrument, such as a fixed deposit, the interest income in P2P lending is also taxable. Lenders’ interest income from peer-to-peer lending is classified as “income from other sources” and added to their taxable income.


Peer-to-peer lending is an attractive investment opportunity for modern-day investors. It is a simple investment process, enabled by technology. P2P lending is a part of the fintech revolution and will play a major role in India’s financial inclusion journey. It will play a key role in mobilising idle funds in investors’ bank accounts and increasing much-needed liquidity in the Indian market.

On top of that, online marketplaces like LenDenClub further simplify the process for investors. Let us see how –

  • A family of more than 2 million people
  • AI-powered Auto investment
  • Allows diversification and reduces risk
  • Screens borrower’s profile through 200+ data points to reduce the risk of default.
  • Provides returns up to 12% p.a*.
  • Market-risk free returns

Hop on the bandwagon with 2 million+ investors. Register now!

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