If you’re mulling over making your first P2P investment, here’s a step-by-step guide on how to go about it.
Today, there’s no realm in our life that’s been left untouched by technology. In fact, it wouldn’t be too presumptuous to say that there isn’t a problem today that technology can’t solve. From paying your utility bills to applying for a Credit Card or Personal Loan, you can do it all online.
In its initial days, demonetisation may have thrown our lives into disarray, but it offered millions of us Indians the much-needed fillip to switch to non-cash payment methods. Non-cash payment methods are hands-down a leg-up from traditional payment methods, owing to them being more quick, transparent and convenient than the latter.
As technological solutions continue to revolutionise and improve our everyday life, people are seeking out more non-traditional forms of investment to bet their money on. Take the case of P2P lending, for instance.
While in China, peer-to-peer lending platforms, or P2P platforms as they’re better known, have been mired in controversy and have been posing a great challenge for Chinese regulators, in India, it has only started gaining traction in the recent years. P2P platforms match someone looking to invest with someone looking for funding. They often promise double-digit returns on short-term investments.
Additional Reading: Everything You Need To Know About P2P Lending
How to make your first P2P investment:
According to RBI data (till Jan 03, 2019), only eleven lenders are registered in the ‘NBFC-P2P’ category. P2P platforms list borrowers and lenders after carrying out thorough due diligence and verification. They also use an automated credit appraisal system to calculate interest rates, basis the personal and financial information of borrowers. To qualify as a lender, you need to be above 18 years of age and should hold a valid bank account and PAN in India.
Here’s a step-by-step guide to making your first P2P investment:
Step 1: After you’ve chosen the P2P platform you want to invest your money in, you have to register on it. You’ll be asked to create a login ID after entering your basic information and providing self-attested photocopies of your PAN and address proof.
Step 2: Once you sign up, you’ll be asked to create an investor account in order to carry out financial transactions. You may have to pay a one-time refundable fee of Rs. 500 – 1,000 at the time of signing up.
Step 3: Once the platform completes your verification, your investor profile will be created and listed on the platform along with your investment preference.
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Step 4: Largely, a reverse auction model is followed on these platforms where the lenders bid for a borrower’s proposal and the borrower has the option to accept or reject an offer. Thus, you can start by sending proposals to borrowers. The rate of interest is decided by both the borrower and the lender during the listing period. Long listings along with the personal and financial information of each borrower will be listed on your dashboard. As a lender, you can choose to lend to one or multiple borrowers.
You can fund up to 20% of a borrower’s requirement. As per RBI norms, as a lender, the total amount that you can lend cannot exceed Rs. 10 lakhs at any time across all P2P-NBFCs platforms, with a maximum of Rs. 50,000 per borrower.
Step 5: Once the lender and borrower have mutually agreed on an arrangement, the investor can request to view borrower documents by paying a document viewing fee. This fee is valid for a limited time. Once the lender has successfully verified the borrower’s documents, both the investor and borrower have to sign a loan agreement that is legally binding and enforceable in a court of law.
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Step 6: The loan is disbursed after the official loan agreement has been signed and the borrower fulfills requirements towards security and repayment of the first EMI.
Step 7: Loan disbursal and repayments are made through an escrow account. The investor should pre-fund his escrow account with the amount he wishes to invest. According to RBI norms, a P2P platform must maintain at least two escrow accounts for funds transfer that can be operated by a trustee promoted by the bank which operates these accounts.
Step 8: Once the loan is disbursed, the lender can expect repayments on or before the 15th of every month. If a borrower defaults on repayments, a penalty is levied on the borrower that is payable directly to the lender. The lender can choose to re-invest the money earned from EMI repayments in order to earn better returns.
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