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Investing in Peer-to-Peer Lending: Exploring Alternative Investment Opportunities

You downloaded Deciml. (Good!)
You signed up and set up auto-pay. (Great!)
You started investing. (Awesome!)

But… Now what? Using your Deciml App, you can either invest in mutual funds (which you know a fair bit about already!), or in Lendbox! So, what is Lendbox? What does it mean to invest through Lendbox?

Today, we’ll focus on answering these questions, by taking a deep dive into a form of investment called Peer-to-Peer (P2P) lending.

What is Peer-to-Peer Lending?

Peer-to-Peer lending is a form of investing where people can obtain loans directly from other people, instead of going to a middleman or bank or financial establishment. You can say that the Peer-to-Peer lending in India connects individuals or small businesses seeking loans, i.e., borrowers with individuals willing to lend money i.e., investors or lenders. Lendbox is one such P2P platform, and it is the Peer-to-Peer lending platform available on the Deciml App!

It is noteworthy that the P2P lending model bypasses traditional financial intermediaries like banks and allows for direct lending and borrowing between individuals through an online platform. The Peer-to-Peer lending apps simply help in facilitating loan transactions and providing a platform for lenders and borrowers to interact.

Features of Peer-to-Peer Lending

This brings us to the important features of Peer-to-Peer lending. P2P lending is a relatively new instrument of investing, so it is important that you know what attributes make it a suitable choice for you – 

1. Digital Platforms – Peer-to-Peer lending is conducted solely through digital platforms (websites, and apps). These platforms are what make the marketplace for such a form of investment by creating loan listings which investors can review and invest in, based on their goals. Perfect for the smartphone generation!

2. Diverse Borrower Profile – Peer-to-Peer lending allows a wide range of borrowers, including individuals, small businesses, and even startups, to access funding that they might not be able to secure through traditional banks due to rigid eligibility criteria. You can choose from a wide list of funds and can elect to invest across a portfolio of your own choice.

3. Risk Assessment – Peer-to-Peer lending platforms utilise a number of risk assessment tools and techniques, basis which they create a credit scoring model. This credit scoring model is what allows them to accurately assess the creditworthiness of the borrowers – so that the investors (lenders) can make informed decisions about which loan they are willing to fund.

4. Interest Rate – The point of investing is to have your money make you more money! So attractive interest rates are always an appealing addition to any investment fund. Peer-to-Peer lending can offer attractive interest rates to both borrowers and lenders. Borrowers might find lower interest rates compared to traditional loans, while lenders can potentially earn higher returns than they might get from other investment options. Lendbox through Deciml, for instance, offers a 10% return on investments, applicable immediately after you have invested.

5. Security & Transparency – Peer-to-Peer lending platforms provide transparent information about borrowers, loan terms, interest rates, and fees, so you can make well-informed decisions! Further, these investments are also regulated by the RBI and SEBI, to ensure the safety and security of your money.

According to a report the P2P lending market in India is expected to grow at a CAGR of 18.6% from 2020 to 2028 (Source: TOI). It is because of these features that the growth of Peer-to-Peer lending looks promising in India as of today!

Benefits of Peer-to-Peer Lending

Based on the key features of P2P lending, you can probably guess some of its benefits! But allow us to quickly walk you through the main advantages of Peer-to-Peer lending for the investor –

1. Opportunity for Diversification – Peer-to-Peer lending allows young investors to diversify their investment portfolio beyond traditional options like stocks and bonds. Think of P2P lending as a new avenue that is now present for you to explore, invest in, and create wealth through. 

2. Higher Potential Returns – Peer-to-Peer lending can provide higher interest rates, especially when compared to traditional savings accounts or fixed deposits or even some mutual funds. And you know what happens when you combine attractive interest rates with long-term investment horizons – right? Gains!

3. Low Entry Barriers – Many P2P platforms have relatively low minimum investment requirements, making it accessible for young investors with limited capital to participate in lending activities. For instance, with Deciml you can invest as little as ₹1 (yes, you read that right!) with Lendbox. So there is no pressure on you to first accumulate wealth and then invest it – you can simply invest as you spend!

4. Direct Involvement – Youngsters today are excited about investing. They are curious and inquisitive, and they want to be in the know about where their money is going. The detailed lists of borrowers can help you choose the right funds to invest in, allowing you to support the borrowers’ journey as well, in tandem with your own financial growth. You can support underserved borrower segments like startups and small businesses, contributing to economic growth and job creation as well!

5. Digital Accessibility – Since Peer-to-Peer lending is entirely digital, you can manage your investments on the go! Additionally, features like automation will help you not only invest regularly and consistently, but it can also propel you into building the investment habit as well. For example, with the Deciml app, you can set up auto-pay in 2 easy steps, after which no manual intervention is necessary for your investments to go through routinely.

An important takeaway to remember is that while Peer-to-Peer lending is quite beneficial for the investors, i.e., lenders, there are some things that borrowers of P2P lending might want to keep in mind. The most important of these is the default on the loans, which could cause borrowers to incur a default fee. 

As always, we recommend that all investors conduct thorough research, and only allocate a portion of their portfolio to P2P lending to manage risks effectively. Provided you have done your due diligence, Peer-to-Peer lending can be a great asset to have in your financial portfolio.

FAQs

  • What is the meaning of Peer-to-Peer lending?

Peer-to-Peer lending is a form of investing where people can obtain loans directly from other people, instead of going through a middleman of any sort. It connects individuals or small businesses seeking loans, i.e., borrowers with individuals willing to lend money i.e., investors or lenders.

  • What are the advantages and disadvantages of Peer-to-Peer lending?

P2P lending is a transparent, secure option for investment that can enable high returns and diversification for lenders. Borrowers in the P2P ecosystem need to be wary of defaults and subsequent default fees.

  • What is the interest rate of P2P lending?

Interest rates for P2P lending typically are observed between 9-12%.

  • How much money do I need to invest in P2P lending?

You can invest as little as ₹1 into P2P lending using the Deciml App. The barrier for entry for P2P lending is relatively flexible, and you can invest as much or as little as you want in most cases.

  • Where can I go to invest in P2P lending?

P2P lending is an entirely digital undertaking. You just need access to the website or app that enables such investments.

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