The young are restless and desire money, and they want it instantaneously. The emergence of peer-to-peer (P2P) lending platforms has led to a culture that allows millennials – who may otherwise not be able to get loans from banks – to borrow easily, with little credit evaluation. Another individual sits on the other end of the platform, ready to lend money and exploit the helpless borrower, with hopes of earning higher interest rates; all in the name of ‘investment.’
LenDenClub, a P2P platform, has analysed the annual data of four lakh users on its platform and has come up with a report titled “The 2019 Lending and Borrowing Behaviour.” There are close to 20 P2P platforms in India. LenDenClub has looked at borrowers’ age group, typical borrowing patterns, lenders’ background, age-group and investment habits of people on P2P platforms across India to get a better picture of who exactly comes on board. Let’s delve on the key points from the study.
Millennials borrow heavily for emergencies
The findings depict that 80 per cent of the borrowers are under the age of 35 years. Also, on P2P platforms, 71 per cent of the borrowers have monthly incomes of less than Rs 30,000. Harshvardhan Roongta, Principal Financial Planner at Roongta Securities points out, “Most people who borrow on P2P platforms are those who don’t get loans from banks because of a weak credit profile or very low income.”
It’s being observed that the borrowers on P2P platform lack basic discipline of saving for emergencies. They are unable to pay credit card dues, school fees, house rent, or save for any medical emergency in the family, etc.
They must create an emergency corpus. Dev Ashish founder of StableInvestor.com advices, “As a thumb rule and for starters, it is advised to keep at least three to six months’ worth of basic living expenses as contingency fund.”
According to the study, the proportion of new borrowers on P2P platform is 63 per cent. The proportion of repeat borrowers is 37 per cent. The loan frequency of repeat borrowers is three times. This ratio means that borrowers are getting addicted to borrowing from P2P platforms for emergency and aspirational needs.
Those with a business background lend the most
The findings reveal that 67 per cent of the lenders are millennials (under the age of 35 years) and they are lending on new-age digital platforms such as P2Ps to earn interest income. Customers from business backgrounds topped the chart, along with CXOs (including chief executive officers and chief financial officers), mid-managerial levels persons and salaried individuals as lenders on the platform.
According to the study, 74 per cent of the lenders make investments of up to Rs 1 lakh on P2P platforms. Roongta has this piece of advice to lenders: “Do not allocate more than 10 per cent of your investible surplus to P2P lending.” Also, it’s recommended that you diversify your lending across multiple borrowers with different risk grades to reduce default possibilities. However, while lending on P2P platforms, be prepared for defaults.