The Peer to Peer lending is a unique amalgamation of financial services and technology. While it is still an emerging marketplace, the Indian P2P lending industry has developed a promising eco-system of its own. By connecting Borrowers directly with the Lenders, these online credit marketplaces are using technology to facilitate low-cost and faster credit for –borrowers and higher and more predictable returns for the Lenders.

Regardless of the merit of this model, there have been a lot of misconceptions about this alternative form of financing, especially when it comes to applying for loans by SMEs or MSMEs for business expansion or funding. Sometimes these myths are nothing but a garbled reality, misspoken detail or distorted facts, which over the years are presumed to be the truth. So, to help you gain confidence in P2P Loans, some of the key misunderstood aspects are outlined below:

P2P Loans are for Tech-Savvy Borrowers

Fully False! A major barrier to individuals or organizations considering P2P loan is the fear of technology itself. Just because it is a digitally operated credit marketplace there is a misunderstanding that only tech-savvy people can borrow. However, the fact is that, if you know how to create a Gmail, Facebook or just any other social networking account, then you can easily use the P2P platform as well, without any help. You can apply for a loan sitting at your home, with minimum documentation. Platforms like Faircent, have launched mobile apps for both iOS and Android phones, that allows you to transact on the go from your smartphone.   

The P2P websites are easy and simple to operate, and the loan approval process is more streamlined than traditional banks.

Business Loans through P2P lending are merely to obtain Small-Rupee-Amount

As per the regulatory framework, the P2P loans have a cap of INR 10 lakhs and tenure cannot exceed more than 36 months, making them perfect for small businesses. Today P2P platforms are ideally serving credit need of SMEs in a way that wasn’t available nearly a decade ago. A large population of small businesses especially in semi-urban and rural India, unserved by banks, traditionally dependent on an unorganized sector like money lenders who tend to be exploitative is increasing exploring P2P lending for their credit needs. You can easily avail a Business Loan from as low as INR 15000 up to INR 10 lacs through P2P lending.

You MUST Have a Good Credit Score

P2P lending uses tech-driven algorithms that use new-age data to evaluate a borrower’s eligibility and hence, the credit score is merely one part of the loan underwriting process. So, there is no need to feel disheartened over a less than perfect credit score. On a P2P platform, your loan application may still receive due consideration on fulfilling other eligibility parameters which increase your repayment capacity like a stable job, steady income source, higher income or lower expenses. The interest rates can also be quite competitive when you prove your eligibility in this manner.

Even with a not-so-good credit score, your chances of receiving P2P loans are much higher compared to traditional credit options.

You MUST be Salaried to Apply

Maybe because P2Ps require a salary slip and bank statements to process the loan it gives an impression that only salaried people can apply for a loan here. However, not only the salaried individuals but self-employed, small business owners and any Indian resident can avail a P2P loan. The eligibility criterions might differ and ITR would be a mandatory document required.

You can check out eligibility using our Loan Eligibility Calculator. On Faircent, currently, 64% of loans disbursed are business loans to SMEs and MSMEs, especially from tier 2 and tier 3 cities.

Business Loans on P2P platforms are Expensive

This myth is widely popular amongst masses essentially because it is a debt financing method and does not include any official financial institution as an arbitrator.

Fact: The P2P platform due to a lower need for physical infrastructure coupled with the use of technology to determine borrower’s creditworthiness help in facilitating loans faster and at much lower origination cost. Thus, making P2P loans an affordable and attainable alternative financing option for borrowers.

P2Ps follow a data-driven approach to make credit market more open and efficient. Depending upon your income and credit score, you can easily qualify with an interest rate starting from 9.99% p.a. more than 36% p.a. for personal or business loans.

Final Advice!  

Myths generally emanate from various sources such as the internet, folk wisdom and word of mouth. We all have been taken in by them at some point or another. Wiser way out is not to rely on false conjectures and hearsays. Rather, before signing anywhere above those dotted lines, make sure that you are well-read to make the best decision as per your financial circumstances.