Peer-to-Peer (aka P2P) is considered to be a game changer in the financial landscape. It is a technology that connects lenders directly with borrowers. Such a technique has created a greater impact and has helped in economic inclusion. This financial inclusion is crucial for businesses mainly because it allows them to afford and access several services that will drive their growth. What exactly is P2P? How does it eliminate the need for intermediaries? Is there any risk? There are a lot of questions that need to be answered and understood about P2P to see what kind of an impact it creates in the Fintech landscape. This blog will detail the need for financial inclusion and the way P2P lending software empowers inclusion.
Financial inclusion is something that is still a struggle for many, due to multiple reasons. It makes it difficult for individuals and businesses to connect with banks or other financial lenders and access lending options. Sometimes it is about the lending criteria and a few other times, it is about the affordability of interest rates. In certain cases, there is even a lack of reachability. It is here that peer-to-peer lending platforms create a larger impact.
What is a peer to peer lending platform software?
The online platform connects the borrowers with investors directly and offers a platform where there are no intermediaries. It creates a viable solution for both investors and borrowers, offering them the alternative financing option that they are in need of.
How does it work?
For borrowers, when you apply for a loan through a P2P platform, you need to include a few necessary documents. These include:
- Identity proof (passport, driver’s license)
- Address proof (Utility bill or bank statement)
- Income proof (pay slips, tax return statement)
Apart from the necessary documents, a few photographs and any other reference documentation to support the loan application may be required. Using these documents and the details the borrower enters in the loan application, the lending platforms assess their creditworthiness. Once the loan is processed, the cash is forwarded to their bank account and they can repay the loan through monthly installments, for a fixed period of time with the agreed-upon interest rate.
For lenders, they have the flexibility to choose borrowers and invest as per their wishes. The platforms also enable them to choose their borrowers by providing details like the borrowers’ credit history and other valuable information. Lenders receive monthly repayments, which is a sum of the agreed-upon part of the principal and the interest. Lenders can choose to either withdraw the repayments from the platform or choose to reinvest.
Advantages of P2P lending platforms
There are numerous benefits that P2P lending platforms offer. The foremost is the way it makes financing accessible and affordable for everyone. Here are some of its major advantages that empower financial inclusion.
Improves accessibility to finances
This is the most obvious role of P2P in the fintech landscape. Business organizations may find it difficult in a lot of time to find the right source of finances. Many small and micro businesses face difficulties in availing formal and traditional financial services. This becomes a roadblock in their business journey. Through these platforms, they can access loans easily with just their smartphones. With the digital boost, you don’t have to be physically present. So, you can access loans from anywhere at any time and also get them almost instantly credited to your bank accounts. The borrowers do not have to provide any collateral to secure the loan which lets them access unsecured personal loans.
Benefits for Lenders
Suppose you are a lender and join the platform, you can also benefit from it. To begin with, you can choose from different loan options and choose to lend according to your choice. That is, you can invest based on your preferences. It lets you diversify your portfolio and you can lend to different people from different backgrounds and sectors. It is also said that most P2P platforms enable lenders to offer finances while earning a return on their investment.
Affordable interest rates
When you are looking for loan and financing options, a major thing that you care about is the interest rate. Even if you are able to instantly get a loan, if the interest rate charged is high, we will not be able to afford it. P2P is of great help in such circumstances. They offer competitive interest rates, which are affordable and sometimes even lower than traditional financial institutions.
The low interest rates are made possible majorly because P2P platforms do away with intermediaries of any form. Therefore, all the additional costs spent on mediators are saved and all parties involved – borrowers, lenders and the platform – hugely benefit from it.
Less wait time
As we discussed earlier, one of the major features of P2P is letting you opt for loans at any place and at any time. Therefore, the processing is faster than usual. This is because the processing is automated and streamlined in peer-to-peer platforms, mostly powered by artificial intelligence and machine learning. So, your loan gets easily and quickly approved, and you get the amount in no time. This less waiting time is crucial especially if you need cash in a very urgent situation. Most of these platforms disburse loans within 24 hours of approval.
Requirements can be easily met
Online Peer-to-Peer platforms are changing the fintech landscape because they also enable you to obtain loan services for different requirements. Whether you need cash for education, travel, medical needs or any such demands, you can avail loan at several of the P2P platforms.
For several people who can’t avail of loans through traditional means due to different reasons, Peer-to-Peer platforms are a welcome change. It lends a platform to create a more inclusive society, whereby everyone gets to meet their financial needs. So there is growth in the overall economy, while there is also mutual empowerment.