Large population in India is unbanked and those who are banked too only get a minimum service through banks. Banks maintain a rigid policy that takes most of the customers outside banking purview. More often than not, banks lend to customers with sound financials, good stability and repayment track record etc. This is reflected in their policies which amongst other criteria have a cut off on CIBIL score below a certain range. These customers are practically outcast from bank’s perspective.
Hence, a large population of borrowers has no choice but to look for other options to fulfill their financial needs. In time of urgent need, most of the customers approaches open private lenders for their loan requirement. Private lenders tend to exploit these customers. They charge fix ROI which varies from Rs 2 per 100 to 5 Rs per 100 of loan amount. These fixed ROI translates to close to 50 % per annum interest rate on reducing terms. This interest is charged on per month basis from the customer and principal loan amount would remain unchanged. For ex- if you take a loan of Rs 8 lakhs from private lenders at ROI of Rs 3 per 100 then, you have to pay Rs 24,000 per month just as interest while your principal amount outstanding would remain unchanged. Moreover they charge a hefty commission amount from borrowers for facilitating their loan. The situation gets even worse in case of loans involving mortgages like loan against property or Home Loan. Private lenders tend to take original property papers from the borrowers and there have been cases where these lenders have transferred property titles on their name from gullible borrowers. Private lenders have been quite notorious in not maintaining any documentation for the loan and this lead to further exploitation of borrower. There have been cases of use of muscle power and black mailing by these lenders to extract to get additional leverage from customers.
Peer to peer lending is a newest form of lending that has ability to disrupt the private lending in a big way. It is based on social lending concept in which group of lenders provide funding to a borrower. This phenomenon is already quite popular across developed world and is gaining quite traction in India too. Peer to peer lending platforms operate in transparent manner with all the terms and conditions are disclosed to customers beforehand. Peer to peer lending India operates in a online environment where all the information is available to borrower on a single click. Every borrower is provided with a separate account on their website where they can regularly update themselves regarding their loan proposal. These platform charges reducing ROI which is quite lower compared to private lenders. Moreover, peer to peer lending India platforms don’t charge any commission fee from a borrower. For mortgage backed loans mentioned above, these institutions have a proper security mechanism to safeguard your original documents and a proper loan agreement is signed between borrower and a lender mentioning all the details related to credit facility.
From the above article, it is quite evident that private lenders should be avoided at any cost by the borrowers to safeguard himself and his hard earned assets from these lenders. Moreover, with advent of Peer to peer lending India platforms getting your loan proposal sanctioned in transparent manner is much easier than before.