Peer to Peer (P2P) Lending is a digital platform-based model where individual lenders provide loans directly to borrowers. It operates through registered online platforms that connect both parties under a regulated framework. Returns and risks depend on borrower repayment capacity and platform processes.

How Peer to Peer Lending Works

Peer to Peer Lending platforms are registered with the financial regulator as Non-Banking Financial Company - Peer to Peer (NBFC-P2P). These platforms act as intermediaries, facilitating loan transactions between lenders and borrowers without taking deposits or lending on their own balance sheet.

Lenders can choose to participate in funding loans listed on the platform, subject to regulatory limits. The platform manages documentation, credit assessment processes, and repayment tracking as per applicable rules.

Types of Loans Available on P2P Platforms

  • Personal Loans: Short to medium tenure loans for individual needs.
  • Business Loans: Loans provided to small businesses or entrepreneurs.
  • Consumer Loans: Used for specific purchases or short-term requirements.
Peer to Peer Lending

Key Features of Peer to Peer Lending

  • Digital Platform-Based Model: All transactions are executed through registered online platforms.
  • Regulated Structure: Platforms operate under guidelines issued for NBFC-P2P entities, including exposure limits for lenders and borrowers.
  • Defined Investment Limits: There are caps on how much a lender can lend across platforms and to a single borrower, as per regulatory norms.
  • Market-Linked Returns: Returns depend on the interest agreed upon and timely repayment by borrowers. There is no guarantee of returns.
  • Diversification Option: Lenders may distribute funds across multiple borrowers to manage exposure.
  • Credit Risk Involved: Repayment depends on borrower creditworthiness. Delays or defaults may impact returns.

Peer to Peer Lending provides an alternative way to participate in credit markets through regulated digital platforms. Understanding the risks, limits, and repayment structure is important before participating.

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