Peer-to-peer lending is a concept that allows people to bypass banks for lending or borrowing money. The service may also be used by people who are not happy with lending rates of banks. The service, which links borrowers and lenders directly, has now sprung up in India as well.
P2P lending leverages the power of the Internet and the reach of social media. The concept is different from microfinance firms and payments banks. As of now, there are about 30 P2P lending sites such as P2P Lending. Fair Send, I-lend, Lend Box and so on. Such sites offer money from Rs25,000 to Rs500,000. Those applying for a loan can apply using digitised copies of their credentials. Companies consider the credit score of the applicant as well as the social score of the applicant with social sites such as Facebook and other sites giving an indication about his or her social standing. Those with higher risks would have to pay higher interest while those with lower risks would have to pay only lower interest. Loans are offered for six months to three years. The loan would carry additional processing charges.
People can also lend extra money to make better profits. One can decide to lend after considering the credentials of those applying for a loan.
Many a times money offered to borrowers would be pooled. The borrowers and lenders would often discuss the terms of the loans and then sign mandatory legal documents and cheques may have to be provided as security. If the loan is not returned, recovery agents would be used and the client would be also be charged for bounced-cheque crimes.
While one can get higher earnings from P2P sites, the chances of losing money are also high. This is because many people who do not have access to conventional forms of borrowing will depend on such sites to source money.
Currently, P2P lending sites do not have legal backing from the RBI and concerned a