A way to build wealth! Opening doors to Passive Income! Investment Free from Market Fluctuations, Month-on-Month Returns, and satisfaction of helping others in need – These are some of the factors attracting the attention of both the individual and institutional investors to the peer to peer (p2p) lending in India.

P2P lending - an alternative asset class that promises high returns, more stable than any other traditional form of market-linked investment. But, did you ever wonder how this innovative debt-based financial instrument works to make your money earn more? Or How to Invest Money in P2P loans? then read on. Here is a 2-minute quick read decoding the fundamentals of P2P lending for investors of all age groups!

What is P2P lending?

 As the revolution of sharing economy has hit the financial ecosystem the birth of P2P lending took place. It is that age-old practice of lending money that in modern times has morphed into debt-based investment instrument with the digital touch. The loans for a very long time were the banks most lucrative and highly performing asset. Today this investment domain is open for one and all with the rise of P2P lending.

How does it work?

A P2P lending platform like Faircent provides you with a list of pre-verified individuals and businesses who need a loan - personal or business loan. You select the borrowers who meet your criteria and finance their loan requirement ‘partly’. The borrower then starts making EMI repayments that obviously will include a part of the principal amount and the interest. This is how you get payments every month that actually open doors to month-on-month returns and an alternative income source until the loan is fully repaid.

The P2P platforms due to their capital-light model and no arbitrary mediation allow borrowers to access credit at interest rates between 9.99%p.a. to 36+% p.a. while lenders can earn gross returns from 18% to 20+% p.a. A win-win for both the participants.

You can read 5 reasons why P2P lending is being considered by investors for in-depth information on How to Invest money in P2P lending.

The Pride in Social Lending 

Now you know how investing in consumer loans is beneficial to you, but by doing so you are also helping others.

Considering the legacy processes followed by traditional FIs and banks, a large population of unbanked Indians are not able to access loans from organized sector. A huge population of underserved Indians also face loan rejection from banks due to reasons like bad, poor or no credit history. As a result, so many honest, reliable and creditworthy borrowers cannot get loan when they need it the most.

Luckily, P2P lending is poised at disrupting the financial system. By using new-age data and tech-enabled credit evaluation mechanism, P2P lending is enabling a sustainable lending community, where lenders can earn more from their savings by helping those in need of credit. 

Lastly, while there is definitely some risk involved with investment in P2P loans, it is important to note that this risk can be minimalized by careful planning and using various tools and features provided on the platform to help spread risk and build diversified portfolio. How?

Read the report on How Reinvestment and diversification drive high returns for lenders in P2P lending, reveals Faircent.com’s Research and Analytics Report for Q1 2017