Peer-to-peer (P2P) lending platforms offer loans for short-term requirements. This could be for a medical emergency, repaying credit card dues, home renovation, business loan, travel loan, or other such needs. A segment of borrowers finds it easier to borrow from P2P platforms compared to traditional personal loans from banks and non-banking financial companies (NBFCs), as the processing and disbursement of the loan amounts are quicker at P2P lending platforms compared to banks.
On the other side of the coin are the salaried and self-employed individuals who are ready to lend money to borrowers on P2P lending platforms with the aim of earning attractive double-digit returns. But this comes with its own set of higher risks compared to investing in traditional financial assets, such as mutual funds, equities, etc.
A report prepared by P2P lending platform LenDenClub, based on users' data for the last financial year, has thrown up some interesting insights. For the report, LenDenClub looked at the borrowers’ age groups, typical borrowing patterns, lenders’ backgrounds, and the age groups and investment habits of people on P2P platforms to get a better picture of the ones who enter this arena.
Here are some of the key highlights of the study:
Millennials borrow heavily for working capital and medical emergencies
The report shows that 87 percent of the borrowers are millennials (those under the age of 40). Also, on P2P platforms, 67 percent of the borrowers have monthly incomes of less than Rs 30,000. The average loan amount stands at Rs 75,000.
Harshvardhan Roongta, Principal Financial Planner at Roongta Securities, points out, "Most people who borrow on P2P platforms are those who don’t get loans from banks because of a weak credit profile or very low income."
Bhavin Patel, Co-founder and Chief Executive Officer (CEO), LenDenClub, said, "We noted a surge in demand for working capital, indicating that small businesses are increasingly turning to digital loans to meet their financial requirements."
Another trend observed about borrowers on P2P platforms is their lack of basic discipline in saving for medical emergencies that their family may face. Not having a medical emergency fund can put you in a difficult financial situation in the event of any uncertainty, such as hospitalisation of a family member. "Having a safety net in the form of a medical emergency fund not only adds to financial stability but also leads to peace of mind," said Dev Ashish, Founder of StableInvestor.com.
Following closely behind were loans for advance salary and home renovation, which also contributed to the demand for borrowers on the platform.
Salaried lend the most on P2P platforms
Salaried professionals ranging from CXOs, including chief executive officers (CEOs) and chief financial officers (CFOs), to mid-managerial staff topped the chart at 68 percent as investors on the platform. About 29 percent of self-employed people also invested in P2P platforms. The findings also reveal that 59 percent of the lenders are millennials.
Preferred lending
According to the study, 48 percent of the lenders make investments above Rs 10 lakh on P2P platforms to earn interest income. Roongta has this piece of advice for lenders: "Do not allocate more than 10 percent of your investible surplus to P2P lending."
Also, it’s recommended that you diversify your lending across multiple borrowers with different risk grades to reduce default possibilities. However, while lending on P2P platforms, be prepared for defaults.
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