Peer to Peer Lending is better known as P2P lending. It presents an online financial framework to borrowers and lenders without the bank acting as a mediator or third-party. It is an attractive and smart investment opportunity where lenders benefit by getting a higher interest rate, as compared to the conventional modes of investment, while borrowers benefit by not having to go through the rigmarole of innumerable paperwork and collateral hassles.
The online portals charge a nominal fee which is absolutely worth the services they offer in return, to both the parties involved.
However, as a new player in the field, here are some smart tips to keep in mind before investing in P2P Lending platforms.
September 2017 marked a landmark for all P2P Lending platforms when the RBI issued a notification mandating all P2Ps to be registered as non-banking financial companies (NBFCs). It further issued a set of guidelines that have been made mandatory for all P2P platforms to follow. This revolutionary step laid the groundwork for the growth of the P2P lending market, which is expected to touch new heights in the upcoming years.
Talking about India alone, this sector is expected to reach the bracket of $4-5 billion by the year 2023. It can be hence summed up that P2P lending is here to stay and investing in the same right from the early stages can render faster earnings on your surplus funds.
Take some time to work on and build a diversified portfolio of investments. The trick is to invest in smaller amounts over a wide range of borrowers, so any defaulter on your loan amount does not come as a sudden shock or blow and can easily be absorbed and recovered in due course of time. Diversified investments mean diversified borrowers with different profiles, requirements, credit scores, repayment terms, and so on.
Hence, always spread out your investments over a myriad range of loan-takers, belonging to different genders, locations, occupations, and risk brackets. Remember, the aim is to ‘Play safe and remain safe.‘
Invest and Stay Invested
The financial market offers you a wide array of asset classes to invest in. Keeping your money idle will never generate any revenue. The newest and most innovative financial trend is the P2P investment platform, which delivers higher and more stable returns as compared to MFs and stocks.
Start on your investment portfolio slowly and steadily by investing with as low an amount as 50k to a lakh initially, depending on your risk-bearing capacity. However, it is advisable to invest in long-term plans of 24 to 36 months as they ensure compounded, increased, and accumulated returns on your investments.
The P2P lending platform has one of the most significant advantages, which is making it a hit across all financial investment borders. Here, investors start earning right from the following month of their investment. This enables them to roll back their profit amounts and reinvest on the portal for further compounded interest returns.
This stands as an extremely lucrative option for investors who want to reinvest at least partially, if not fully, to earn maximum on their spare funds. When funds are reinvested, it ensures the Net Annualized Return (NAR) remains high at all times.
P2P platforms list all borrowers across various risk buckets, ranging from low to high, depending on their credit evaluation. Where low-risk loans ensure faster borrowing, the interest rate earned on them is pretty low.
A high-risk loan, on the other hand, ensures a much higher rate of interest on your investment. A good approach is to have a taste of both. The default rate for each category is transparently listed on the platforms, which should be kept in mind while calculating your return on the investment, so as to be able to set the right expectations and ascertain the degree of risks attached therein.
Track and Correct
Every peer to peer lending platform provides a fair collection of reports, data analytics, and tools on their dashboard to track the performance of each portfolio listed with them. This enables you to keep a close check on the NAR and EMI you receive on your investments.
As an add-on service, these online portals even provide additional metrics like temporal and distributional data, wealth enhancement tools, portfolio comparison with platform performance, and so on, which help in earning higher returns and undertaking correction measures required to maintain a high NAR from your investments on the platform.
Peer to peer lending is becoming a favorite alternative option for smart investments across major economies of the globe including the UK, Australia, China, the US, India, to name a few, especially among those seeking high returns at moderate risks.
P2P Lending has risen as an attractive investment avenue, in comparison to other investment parameters available at hand. And i2iFunding.com is one such online platform which brings investors and borrowers from all across the globe on a common safe platform and even presents a win-win situation for both.