Reasons Why Investors Should Consider P2P Lending

Aug 4, 2022

Reasons Why Investors Should Consider P2P Lending

Peer-to-peer (P2P) lending is an age-old concept. But it has recently developed a solid reputation as a formal method of constructing an investment portfolio. As a result, P2P lending in India is now being viewed by investors worldwide as a must-approach potential for high and secure profits.

How P2P lending works:

Peer-to-peer lending platforms enables investors to contribute to businesses or people while also participating in large loan pools. Their investment is divided into a large number of small blocks of money and spread across a large number of borrowers. When a borrower seeks a loan with LenDenClub, the money he gets is the sum of contributions from many lenders, with some contributions as little as ₹1. This process of division of funds from lenders and allocation to borrowers is done using the company’s AI-based system.

Such diversification reduces investors’ risk. Before listing borrowers, the lending platforms verify them beforehand.

The selection of the borrower pool is mostly automated whereby the platform’s AI mechanism kicks in to identify prospective borrowers on behalf of a particular lender based on their risk appetite.

Here are a few must-read reasons why investors should consider Peer To Peer Lending In India:

Higher returns

For most lenders on the platform, average net returns (after subtracting losses) range from 12 to 15 percent. If typical returns from other market-linked investments like the stock market are considered, these returns are very competitive.

Safety

High risk often equates to high profits. So, of course, you should also focus on the safety of your money and the big profits.

LenDenClub performs detailed research on borrowers’ profiles, based on many unique data points and determines the risk involved. This ensures that the risk of investment is mitigated to a larger-extent.

The platform assesses each borrower’s creditworthiness. It only shows borrower profiles for those who pass the credit requirements. LenDenClub approves only a small percentage of loan requests. The credit score, financial information, and other approved profile details are provided.

The risk category is a measure of a borrower’s dependability. It is calculated by looking at the borrower’s loan history, prior defaults (if any). Along with that debt-to-income ratio, educational background, and employment information, among other factors. According to this theory, you should be aware of the borrower’s capacity and purpose to pay.

Returns after shorter periods

Investments are designed for long-term objectives and returns. FDs and government bonds, which offer returns, require investors to keep their money invested for multiple years. But what if you seek more liquidity from your investments? LenDenClub offers lenders the option to invest for one year and take their money out. In short, one can expect returns in an year.

If the investor wishes to keep their money for a longer period, they can reinvest and enjoy compounded returns up to a period of five years.

Reduced Risks

Diversifying your portfolio and dividing your funds across several borrowers will maximize your returns if you intend to invest in peer-to-peer lending in India. But, with the implementation of RBI restrictions, a lender-borrower combination is now only permitted to trade 50,000 at any given moment.

Let’s imagine your investment goal is Rs 6,000,000. You can give the funds to many borrowers in any manner and even charge them various interest rates.

Cross-checking all the borrower’s information is advised while using P2P lending. Before lending the borrower money, review his profile. Also, favor platforms that assist in recovering the money if a borrower defaults.

Diversification of P2P portfolio

An investor’s portfolio of market-linked investments is often diversified by investing in various assets. For example MFs, SIPs, and P2P lending. More diversification in this loan market can be achieved by investing across borrower profile pages, and professions.

How investors check the risks versus the rewards

The dangers of default cannot be eliminated, even though P2P systems go through rigorous due diligence procedures. But, investors can reduce default risk by spreading their portfolios across creditworthy borrowers.

How investments in P2P are to grow

With guidelines that address permitted activity, prudential capital requirements, data security, business continuity plans (BCP), regulatory reporting, customer interface, and other operational parameters, the RBI has regulated peer-to-peer lending in India and recognized it as an NBFC-P2P.

Regulations have improved the industry’s stability and credibility, which has increased lender confidence.

Due to the many benefits that peer-to-peer lending offers borrowers (such as immediate funding, flexible payment periods, accessibility to loans for creditworthy borrowers with low credit histories, etc.), investors are sure they will receive massive returns on their investment opportunities.

Peer-to-peer lending is here to stay, as seen by lenders’ growing involvement. In a word, it’s a valuable source of income for people looking to manage their risk better while regulating their returns.

Conclusion

Without a doubt, borrowing loans will never come to an end. P2P lending in India is hassle-free, and it doesn’t need you to check your portfolio hourly. You might consistently make good money because of its high yields and safety.

P2P lending, in short, meets all investment needs. LenDenClub is a great place to start if you haven’t already!

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