Borrowing from a peer-to-peer platform is much easier than a traditional lender like banks or non-banking financial companies (NBFC) as it involves less effort and is not charged with higher interest rates or face any hurdles due to poor credit history.However, P2P platforms practice caution as the money involved in their own and without a proper background check and credit history, it becomes risky for investors to lend their money.
“P2P platforms remove the middleman from the process and make the entire process more profitable for borrowers and lenders. Also, the loan disbursal time taken by a P2P platform is comparatively lesser than that taken by traditional banks. Since the process is online on most P2P platforms, the confusing paperwork involved in application is totally avoided,” Ajit Kumar, founder and chief executive officer, RupeeCircle said.
Here are a few things to look out for before borrowing from a P2P platform:
Check if your P2P platform is registered with the Reserve Bank of India. While many online lending platforms offer quick loans, only a few of them have received the NBFC-P2P registration from RBI, making it a safer and credible platform for both investors and borrowers.
P2P platforms use traditional as well as digital data points for underwriting to estimate the creditworthiness of a borrower. Thus, it is advisable to not hide any information while applying for a loan and be as honest as possible so that it becomes easier to get your loan processed.
“When you are borrowing from such platforms, it is essential for you to disclose all the information correctly. If you do not, your loan application may get rejected after verification. So, always disclose the right information at the time of applying. While applying for a loan on such platforms, handy scan copies of the documents and a selfie are all you need,” Bhavin Patel, co-founder and CEO, LenDenClub said.
Make sure you check for any extra charges that the platform might impose on you, that would, in turn, add to the total interest paid, or deducted from the amount you have received. Also, ask if there are any prepayment charges that the platform might charge, in case you want to pre-close the loan.
Essentially, you need to pay nominal registration fees and processing fees when the loan is disbursed to the borrower. Make sure you have a clear idea about the final amount that you are getting after all the deductions.
Make sure that you are applying for the right amount of loan, which shall not give you additional financial baggage while repaying the loaned amount. Defaulting or late payments on P2P loans has its consequences as most NBFC P2P platforms have bureau integration and thus, it makes it difficult for the borrower to avail future loans as well if the borrower has been tagged as a defaulter.
Do not shy away from asking about details related to your loan and the equated monthly installment (EMI) that you are going to pay and penalty in case you delay your payment. As per the RBI, if the EMI is not paid in 90 days after the due date, it is considered as a default. Various P2P platforms may have grace periods within which you can pay your dues.
Find out what is the maximum time a platform takes to disburse the loan, as different platforms follow different procedures to disperse the loan. It becomes all the more crucial when you are borrowing for an emergency need.
