How Do P2P Sites Guard Against Bad Loans?

Aug 9, 2022

The peer-to-peer lending industry has been growing rapidly since it first emerged in the mid-2000s. In fact, according to Predence Research, the global peer-to-peer (P2P) lending market size was at US$ 83.79 billion in 2021. But, what’s interesting is that the research report also estimates the industry to grow at a CAGR of 26.7% from 2022 to 2030.

A primary advantage of investing in P2P lending is direct access to the borrowers, which in turn results in higher returns. It is a non-market linked instrument that generates an average of 10-12% p.a. Moreover, it’s a great way to diversify your investments. It can provide your portfolio with the much-needed cushion whenever stocks or other asset classes in your portfolio turn southwards.

How Does P2P Lending Mitigate Risk?

Like any other instrument, P2P lending also has its own set of risks. The most common risk is borrower defaults.

However, P2P sites or marketplaces have risk mitigation strategies to guard against bad loans. They implement numerous checks and factors in place before assigning a borrower. In most cases, the P2P marketplace ensures that with such risk mitigation strategies in place, the money is borrowed only by eligible and creditworthy borrowers.

For instance, LenDenClub capitalizes on its proprietary AI mechanism to diversify loans into multiple buckets. This ensures that defaults do not impact your lending portfolio in a major way.

Common mistakes people make during lending

Are you considering investing in P2P lending instruments? Then be careful of some common mistakes. Avoid these mistakes when lending:

  • Choose the right platform to invest your money:

With multiple players offering P2P lending products, it’s imperative that you choose the right platform for making investments. Some data points to consider include the total number of lenders and borrowers registered on the platform, cumulative amount of loans disbursed, default rates, etc. Such stats helps you separate winners from the losers and helps you select the right investment partner.

  • Invest a considerable amount to start with:

Most newbie investors in P2P lending platforms try their hands with such investments risking the lowest amounts possible. But such strategy defeats the purpose on which P2P lending is built – Diversification. When you invest in very small amounts, you are not able to diversify your investments among a large number of borrowers. Moreover, your returns in absolute rupee terms are negligible.

At the end of the day you’re more likely to forget this investment option than to explore further. But if you invest a considerable sum, you do things right and that’s when P2P lending can help smoothen out your initial journey.

Factors LenDenClub considers before Lending.

  • Credit score:

You may have heard of a credit score, which is a number that lenders use to determine whether or not a borrower is likely to repay your loan. The credit bureau gives credit scores. It ranges from 300 to 900. LenDenClub ensures that only credit-worthy borrowers can apply for  loans from their platform.

  • Debt-to-income ratio:

One of the 200 data points that LenDenClub’s AI mechanism considers when lending money to borrowers. Such ratios and metrics help the platform understand the ability of a borrower to repay. If the borrower scores low, they become ineligible to draw loans helping lenders invest their money in a highly secured environment.

How LenDenClub creates a Safe Lending Environment

In India, peer-to-peer lending makes investing in good loans more convenient. P2P players like LenDenClub utilize data and technology to identify credit-worthy borrowers and enable investors to lend safely on their platform.

Here’s how lending sites are enabling safe loans:

  • Generate FMPPs Instantly

Traditional investing is a slow process. A typical thought process includes – You identifying a potential investment opportunity – doing some of your own research – comparing it with peers – rethinking and asking your friends about the prospects – investing – keep pondering whether your investments will be fruitful or not! Tedious isn’t it?

As an alternative asset class, P2P lending is a relatively simpler concept and provides easy access to make fresh investments.

With LenDenClub, all you do is Register – Select the Time Frame – Invest. You don’t have to worry about manually choosing borrowers, whether your investments are adequately diversified, or any other stuff. Once you hit invest, your FMPPs are created instantly, after which the AI kicks in to make sure your money works for you – 24 x 7!

  • Use of hyper diversification

With P2P lending, diversification is the key to success. It’s done by allocating your money to a large pool of borrowers that ensures defaults don’t impact your investments in a major way.

With LenDenClub, your money is hyper-diversified. A step over the traditional principle, LenDenClub’s proprietary hyper diversification mechanism distributes your money across borrowers with sums as low as ₹1 per borrower. As amazing as it sounds – it’s also a great way to reduce lending risks further and ensure higher returns.

  • Good Returns in a Non-Market Linked Product

Not everyone has the time or interest to become market savvy. Wrong investments in stock markets can cause you to lose your hard-earned money. Predicting the ups and downs of the market can be difficult.

LenDenClub’s FMPP is a non-market linked product. So you don’t have to lose sleep over market downturns. It provides you with sound returns averaging 10-12% p.a.

  • P2P sites adhere to RBI regulations

P2P lending in India comes under the RBI regulations. Thus, it is a completely safe investment option. LenDenClub has been operating as an NBFC-P2P entity since 2014. It also ensures to adhere to the RBI regulations to create a secure lending marketplace.

With LenDenClub, your investments are powered by the state-of-the-art infrastructure that leaves little room for human error! Here are a few points to consider

  • Consistent high returns up to 10-12% p.a.
  • Non-Market linked investment instrument
  • 20 lakh+ registered lenders and 35 lakh+ registered borrowers
  • ₹5000 crores worth of loans disbursed cumulatively to date
  • Technology Powered by AI & ML mechanisms
  • Better Risk-Diversification
  • Compounded Returns


Peer-to-peer lending is a way to borrow and lend money without the involvement of traditional banking channels. This alternative method has been growing rapidly in recent years as more people have turned towards P2P lending as an alternative source for funding their ventures or personal needs.

Join the trending community today. Invest in this new-age investment asset class to generate higher returns on your investments! Invest Now!

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