How To Lend Money Legally For High Interest In India

Aug 9, 2022

 

How To Lend Money Legally For High Interest In India

Indians have been comfortable with investing their money in safe channels such as fixed deposits and provident funds. The lending ecosystem has been largely dominated by banks. But with changing times, more and more Indians are keen on becoming money lenders, to derive high returns on their money. Money lending has been growing significantly to be one of the popular investment opportunities in India. What are different ways to lend money legally in the country?

Types of Lending Money

Lending to Family or Friends 

When it comes to lending money, we are more likely to trust those in our close circle. We believe that we know our family members and friends completely and can trust them with our money. We believe in their causes and trust them to be genuine when they ask us for money. More often than not, this is the case. As a result, we lend our money solely on trust, without any legal agreement. 

But lending money, even to your family and friends, without a written agreement can prove to be extremely problematic for you. As time passes, a significant communication gap about your lending terms can create irreconcilable differences between both parties. To avoid such uncomfortable circumstances, you need to create a legally binding promissory note or a loan agreement. Make the terms of your loan agreement clear. It is advisable to have the following details in your loan agreement: 

  • Both parties’ names and addresses
  • The principal loan amount
  • Interest rate
  • The repayment period
  • Other repayment terms that include important dates

If you wish to include any late fees for any delay in your payment, you can include that as well. 

Lend Money to an Enterprise

You can lend your money to an enterprise. It can be a product startup, a technology-enabled service, or an HoReCa space such as a coffee shop. It can even be a small breakfast joint close to your home. Sometimes, investing in an enterprise can prove to be a safer bet than lending your money to your close people. You can assess the profitability of a company by going through its business plan, its income statements, and its vision for the future. Trying out their product or service is also a good way to assess their chances of success. 

With the growing economy and a variety of entrepreneurs, who are coming up with new ideas, the startup space offers an attractive space to invest your money. If you invest in a promising startup’s stock and remain invested for a long period, the company can turn you into a millionaire. Think about all those initial investors of present-day unicorns, who invested when the company’s valuation was low. However, investment in a startup can have extremely polarised results. Either it can make your investment grow manifold over a short time or can eat up all your money. 

If you are not sure about the startup’s groundbreaking success or its long haul,  you can lend them money in the form of debt for a short period. 

Lend Money on a P2P Lending Platform

Peer-to-peer lending is one of the increasingly attractive investment opportunities in India. You can lend your money to individuals or enterprises through P2P lending, earning reasonably high interest on your money. When you invest in a P2P lending platform, you lend your money to individuals or enterprises, with a variety of needs and business plans. Your money can go to MSMEs, with promising ideas and business plans. It can go to service small-ticket loans from individuals. These personal loans have been rapidly growing owing to the younger generation’s aspirational and consumerist approach to life. 

However, P2P lending reduces the risk involved in lending to individuals and enterprises drastically. This is because you are not the only lender servicing a particular loan. The platform takes small chunks of investments from a lot of lenders, bundles them, and lends that amount. If you register with LenDenClub’s flexible maturity peer-to-peer lending investment plan (FMPP), your contribution to a particular loan can be as small as ₹1.

Also, the platform’s AI-based mechanism divides your investment into a large number of loan requests. You will be effectively lending your money to many enterprises and individuals simultaneously, diversifying your risk. In terms of returns, you stand a chance of investing in a variety of promising causes and ideas and deriving high returns from them. 

P2P lending allows low-

and mid-income individuals also to become money lenders. You can invest in debt with a small capital of ₹10,000, with LenDenClub’s FMPP. Think of being a money lender to a startup or MSME with such a low capital. You can register on the platform for free currently and earn up to 10-12% p.a. as the annual return. 

P2P Lending –

A Rapidly Growing Investment Option

P2P lending in India has been growing at a brisk pace to become one of the popular investment opportunities. RBI has also given cognizance to this financial innovation and has come up with various regulations for easy and safe business investment.

One of the significant features of P2P lending’s journey in India is its growing popularity among women lenders. According to a report by LenDenClub, investments in P2P lending by women in India grew by 430% in FY22 annually. Most of these women lenders were young investors aged between 21 years and 30 years. These figures indicate the growing popularity of P2P lending among tech-savvy, young women. The simple and convenient investment process, made possible by technology, has been attracting them to this investment opportunity. 

Risk is Inevitable

You cannot avoid risk, even when you invest in the most promising company in the world. The secret of a successful investment journey lies in minimising the risk. Owing to its hyper-diversification and thorough screening of loan requests, LenDenClub helps you mitigate your credit risk effectively.. 

Conclusion

Investing in high-return debt investment opportunities is attractive. It will not only increase your wealth over a period but also make an important contribution to closing India’s credit gap. More easily available credit means more liquidity and more liquidity means increased private consumption. Growth in private consumption plays a key role in pushing up the country’s macroeconomic growth, which will benefit every individual in the economy, including you. 

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