How to lend and make Interest Income!!

Whether you know or not, but Lending is one of the economic activity that runs the economy. 

Be it Banks or NBFCs, most powerful financial institutions in the world works on the concept of lending only. 

The history of Peer-to-Peer lending takes us back to a pre-banking period and the emergence of Regulatory institutions gave a tight competition to Peer-to-Peer Lending. Lending is quite popular among rural areas and it's been there quite a long time. 

History aside, let's talk about making money with lending.

Types of Peer-to-Peer Lending

• Traditional Lending Method
• Online P2P lending Platform

Traditional Lending Method

Under this method, people who have loads of money will lend money to people who need money. In general, investors will lend money based on various parameters like trust, the wealth of the borrower, keeping land document/gold/vehicle as security, signing of a promissory note, etc. But mostly these loans are given by investors based on trust and are unsecured. Investors lend simply on the basis of trust to earn higher returns. This method of lending is quite popular among people from the same region/area, friends circle, family/relatives circle, and office groups.

Unlike banks, these offer high-interest rates and safe returns. In the present condition, Investors can return from around 1% to 3% per month. 

Note: This method won't work if you are rotating money at a quicker pace. Once you got lending money from the borrower, quicky search for another investor and give him a loan. 

Pros

• High Returns
• Interest rates of around 1% to 3% per month. (Actually, there is no such limit like that.)

Cons

• High Risk as mostly are unsecured
• Requires a lot of time as it needs to have consistent and continuous effort in recovery and collections
• Need a large and trustworthy network

The biggest disadvantage with this method is one has to consistent and continuous effort in recovery and collections. If at all, if this is regular business for an investor, it works well and fine. But this method doesn't suite investors who want to keep lending as a second income and has less time to look at recovery and collection.

In order to succeed as an investor, you need to have to large network base, you should be extrovert and you be stringent in recovery.

Online P2P lending Platform

Unlike the Traditional Method of Lending, Online Peer-to-Peer Lending offers a safe and risk-free investment. It offers high-interest rates and it requires less time. These P2P platforms are apt for all types of people irrespective of whether you have time to look at recovery or not.

How exactly are online P2P platforms differ from Traditional Method?

It provides data-backed investment options over the traditional options. Apart from these checks, these P2P platforms do credit score analysis and they enable NACH Payments for borrowers so that the EMI amount is auto-debited from their accounts. In this way, P2P platforms offer safe and risk-free investments.

And the biggest benefit is that you don't have to invest your time in recovery and collection. It is being taken care of by the P2P platforms.

Pros

• High Returns
• Interest rates of around 1% to 3% per month. (Actually, there is no such limit like that.)
• Less Risk
• Need less time to manage
• No need to have a large network

This method of investing is quite apt for people who have less time to manage their investments and earn more returns/millennial investors. 

Future of P2P lending in India

Online Peer-to-Peer lending is still in the early stage and is expected to grow to a $10-billion industry in India by 2025, as there are huge opportunities, with the liquidity crunch in the market.

Quick Tip: Be it the Traditional Method or Online P2P platform, the investor needs to rotate the money as soon as possible.