How to build your credit score & protect it

Finance is the fundamental requirement for individuals and enterprises to grow. Today we have the freedom and opportunities to access finance for our goals and economic development in the form of loans and credit cards. Banks and lending institutions are willing to provide loans to individuals to fund their education, buy a house, car or even a holiday overseas.

A vibrant lending culture is gradually bringing more and more people under the umbrella of banking and credit operations. Both the government and the private sector are working towards making credit opportunities available to one and all, so that access to finance becomes easier by the day.

While the focus on credit penetration has increased, credit institutions are diligently assessing borrowers’ credit worthiness so that the quality of credit doesn’t suffer. Thus, the need to have a clean credit history is of utmost importance for any credit aspirant, as without one, there is possibility of being denied fresh lines of credit.

A good CIBIL report and score are important for the following:

• Home loans, education loans, credit card and personal loans may not get approved if the financial institution feels your CIBIL report and score are not up to the mark

• You may have to borrow at a higher rate of interest from other financial institutions

As a borrower these are some of the cardinal duties you need to follow to maintain a sound credit health:

• Make payments on time

This is the first step in maintaining a healthy CIBIL report and score. Whatever you owe in the form of loans or credit cards, if you continue to pay on time, there is a high possibility of maintaining a good report and score. If you cannot pay the entire sum at one go, make the minimum monthly payment that the credit card bill mentions below the total outstanding in a monthly statement. If you have a payment issue on your home loan or credit card payment, contact the financial institution for a solution. It is prudent to keep your creditors informed about any payment issue you might face so that they can help you by offering easier terms and options for repayment.

• Monitor loans you have guaranteed, co-borrowed or co-applied

In case you have guaranteed a loan taken by a relative or spouse, you must monitor if the principal borrower has been repaying on time. Though the loan is not on your name, technically by being a guarantor you have signed for paying up the dues in case there is a default. So any delay or non-payment will affect your CIBIL report and score. At the same time, if you are a co-borrower, you must monitor your partner’s payment behaviour. Though you pay on time, if the other person doesn’t pay, it will still affect your credit report and score directly as you are one of the borrowers.

• Review your credit history time to time

To be able to access credit without any hindrance or delay, you must check your CIBIL report and score at regular intervals, like once in six months at least. It is better to take corrective actions in case the CIBIL report shows any deviations.
If one follows the above-mentioned as a rule of thumb, he/she in all likelihood will have a good CIBIL report and score.

Checking CIBIL report and score should be treated as a credit health management exercise, and not only as one undertaken when you need loans.

As a customer you must understand your rights too and exercise them if required-

• Raise a dispute if you find incorrect information on your CIBIL report

If you find any incorrect information or discrepancy on your CIBIL Report you must raise the same with CIBIL. You can go online and raise the issue by filling the online dispute form. It is very important that you take corrective actions before it is too late and your credit worthiness is affected.

• You deserve a clear explanation on why your loan was rejected

If a lender rejects your loan, it is well within your right to seek an explanation. This will help you understand what the core reason for rejection is and make course corrections accordingly. If the lender cites your CIBIL report and score as the reason for loan rejection then you can request them to provide a copy of your report and score. This exercise will help you prepare better for future loan approvals.

Seeking information and guidance on improving your credit score and report is your right. A healthy CIBIL Report and Score is your key to accessing finance when you most need it.


Author :- http://www.moneycontrol.com/
Reposted By :- http://www.credit4loan.com/

Your money: 4 top ways to boost CIBIL score

You are no stranger to the fact that, it is essential for you to maintain a high CIBIL score to have access to loans when you need them. Just like maintaining your fitness profile you must also attend to your credit profile to ensure that your CIBIL score remains satisfactory. Here’s a closer look at how it can be done.
Your financial health is just as important as your physical health these days. In the modern times that we live in, each of your financial activity is being tracked not just by your bank, but the premier credit bureau in the country CIBIL that is keeping score based on your credit behaviour. Each time you apply for a new loan or credit card, your CIBIL score becomes a barometer of how creditworthy you are. Moreover, potential employers these days are increasingly asking for the CIBIL report of potential recruits. This is to assess how responsible they are with their finances and thus how trustworthy and responsible they will be in their jobs.
There are a whole host of factors that impact your CIBIL score. The most important factor that has a 35% bearing on your CIBIL score is your payment history. The other factors that impact your CIBIL score are credit utilization or how much of your total credit you have used, how long how you been servicing debt, the amount of new credit you have taken or applied for and the mix of your credit. Today, we are here to talk about how your credit mix can improve your CIBIL score:
1. Having a good mix or secured and unsecured loans 
One thing that helps you attain a high CIBIL score is a good balance of secured and unsecured credit. A mortgage or an auto loan qualifies as a secured credit. But you cannot rest your laurels if you have only one of these and have no unsecured credit. A credit card with a  reasonably high credit limit, or a personal loan qualifies under the head of unsecured credit. Unsecured credit means that no collateral or advance payment is required to be paid by the consumer at the time of the disbursal of such credit. Having a mortgage or an auto loan and credit card that you service on time is thus a good way to diversify your credit mix and thus keep a high CIBIL score.
2. Installment credit 
Another type of credit that helps you score with CIBIL on the credit mix front, is having some exposure to installment credit. If you have do not have a mortage or a loan for a vehicle, you student loan too qualifies as installment credit. In other words, any kind of loan with a fixed amount of repayment each month under a pre-specified time frame qualifies as installment credit. So if you are in your first job and still servicing a student loan for a management degree or a vocational degree that you have recently completed, you are still scoring high with CIBIL as far as your credit mix is concerned.
3. Finding the right balance 
The trick to have a good credit mix is to have a good balance of active credit. If you do not have a student loan and are not in a position to apply for a mortgage or an auto loan just as yet, do not be under the impression that no credit will help you have an impeccable CIBIL score. While we are not asking you to be reckless and apply for loans, you may want to start out small and prove that you are creditworthy by applying for a credit card at first when you just start about in your professional life. A credit card is a a great way to build your credit profile if you are using it responsibly. Spending within your means on the credit card and making outstanding payments in full is a great example of prudent use.
4. A word of caution 
While we are reiterating the fact that you must diversify your credit mix, you should not consider it to be a green flag to go and apply for every loan on offer. In this intensely competitive financial world, telemarketers and even direct mailers are always trying to lure you with loans on “low rates of interest” or “lifetime free” credit cards, but do bear in mind that things are being sugar coated and you are not being given the full picture upfront.
So don’t bite the bait easily. Not only will you end up with a loan that you do not need, your CIBIL score may drop as a result of too many hard inquiries. A hard inquiry on your CIBIL report happens when a lender accesses your CIBIL score and report to see how creditworthy you are. Therefore your aim to diversify your credit profile may backfire against you!
Thus, as you can see diversification of your credit mix is a great way to improve your CIBIL score. It has a important bearing on your CIBIL score. But when you set out to diversify your credit profile, do so  carefully so as to avoid it boomeranging on you and so that you don’t end up with a lower score instead!

Author : http://www.financialexpress.com/
Reposted By : http://www.credit4loan.com/

Four things that build & maintain high CIBIL score in 2016

As a conscientious individual you probably know that you need to maintain a CIBIL score of 750 and above (out of 900). This will ensure that you get easy access to credit, as lenders will deem you creditworthy. A good CIBIL score backed by good credit history in your CIBIL report will help you move forward economically and ensure your financial well-being. A new year round the corner is the best time to begin the journey to your attractive credit profile – high credit score. Here is how to go about building and keeping up a good CIBIL score.

Credit card- The first stepping stone

If you just started out in life with your first job, and have no credit history, it is prudent to begin building credit with a credit card. However, do not leap at the first offer that you come across. Compare the fees and reward points on each and pick up a card that is best suited to your needs. A credit card, when used judiciously can indeed be a stepping stone to a good CIBIL score. Spend small amounts on your credit card and ensure that you repay the whole outstanding within the billing cycle. The golden rule of using a credit card is, never to go beyond your means, i.e. not buying anything on the credit card that you think you will not be able to repay within the stipulated time frame of your billing cycle.

Make all repayments on time and clear loan outstanding

This is applicable not just to your credit card, but also to any other credit that you may have availed of. For instance, if you have a student loan running when you have begun your career, make it a priority to make the repayments on time. In fact, it is a good idea to make bullet payments and clear the loan outstanding, if you can afford to do so.

Most people get too overwhelmed in the transition phase between the life of a student and a life of an individual who is financially independent and tend to go overboard in a pursuit of “living well”. It is financially prudent not to give in to the lure of luxuries right away at such times and continue living the way you used to as a student till you find a foothold in your career.

Have a good mix of credit

When you begin your life as an independent individual your needs begin to change. You would probably want to avail of credit to purchase a two wheeler or a car and do up your home. Based on your cash flow, avail of credit prudently based on your needs. A good mix of credit, meaning a combination of secured and unsecured loans will augur well for your CIBIL score. However, do not opt for all such credit all at once as that will make you seem credit hungry to a prospective lender and bring down your CIBIL score on account of too many “hard inquiries”. Each time you make an application for fresh credit to a bank, the bank accesses your CIBIL score and CIBIL report in order to assess your creditworthiness. These requests from the banks gets recorded in your CIBIL report as “hard inquiries” and bring down your CIBIL score a few notches each time.

Check your CIBIL score and CIBIL report periodically

This is the part where most people tend to falter. Apart from maintaining good financial habits it is also of utmost importance to keep a tab on your CIBIL score and CIBIL report. This is to ensure that there are no discrepancies that have crept in. There can be errors like a wrong entry under your name, incorrect personal information on your CIBIL report. If you do not check your CIBIL score or CIBIL report periodically, these errors may surface when you are applying for fresh credit and may mar your chances of getting a loan when you need it the most. To ensure that things are in order thus, pull out your CIBIL score and CIBIL report at least once or ideally twice in a year and ensure that all your records are in order.

Thus as you can see, building a good CIBIL score and keeping it up is closely connected to good financial habits. Just as you would take care of your physical health by eating right and adequate exercise, take care of your financial health too by keeping up a good CIBIL score. Not only will this open up doors for you when you need credit, it will also give you perennial peace of mind!



Author :- http://www.moneycontrol.com/
Reposted By :- http://credit4loan.com/

Should borrowers switch to the new MCLR regime for loans?

The beginning of the financial year has brought good news for borrowers. The Reserve Bank of India (RBI) reduced repo rate by 25 basis points on April 5, and Marginal Cost of funds-based Lending Rate (MCLR), the new methodology for computing benchmark lending rates, came into effect from April 1.
MCLR is expected to make banks respond faster to policy rate revisions announced by the central bank. Given the current falling interest rate scenario, the immediate impact will be the lowering of rates.
While MCLR will automatically apply to new loans, existing borrowers can choose to switch to the new methodology after paying a fee. Existing and prospective borrowers will have to decide on moving to the new benchmark rate and choose a lender who fulfils their requirements.

To switch or not to switch
Loan experts feel that it's an opportune time to move to MCLR. "It makes sense to shift to MCLR as interest rates are on a downward slope. You should take advantage of whatever is available now. Even if you have to pay some charges, it could be worth it," says V.N. Kulkarni, an independent banking and management consultant. You might have to pay a conversion fee of 0.5-1% of the loan amount if you decide to move to the new regime.  Take a call after a cost-benefit analysis, like you would while evaluating loan refinance options.

MCLR is also expected to usher in transparency in loan pricing and revision. "Existing borrowers should move to the available MCLR with their respective banks.The new system of benchmarking is more dynamic and better regulated with the end objective of transmitting the monetary policy in essence without manipulation or leakages and ensuring compliance by banks," says Vipul Patel, Founder, Mortgageworld, a loan consultancy firm. While pros and cons of the new system will come to light over the course of time, he does not foresee any adverse impact on home loan borrowers for now.

However, you cannot dodge the risk of an upward interest revision. If the RBI were to hike policy rates in future, MCLR will prompt banks to swiftly follow suit.

Tread with care
New borrowers do not have to make a choice between MCLR and Base Rate—all new loans will be linked to the former. However, if you are planning to apply for a loan in the coming days, you must closely read the terms and conditions of your contract. Under the new regime, banks will use their discretion to decide the reset period—daily, quarterly, half-yearly or annual MCLR—applicable to home and mortgage loans. So, your home loan interest rate will be pegged to the MCLR basket chosen by your bank.
For instance, the State Bank of India has prescribed an annual reset clause. You will find a change in your rates once a year on the date mentioned in your contract. While this means you will not derive benefits of subsequent rate reductions during the year, you will also be protected from any rate hikes during the period. Moreover, you always have the option of switching to banks that may slash rates later.

The flipside
Despite being introduced as the panacea for all ills afflicting the home loan space, the MCLR regime is not without its share of complexities and limitations. In fact, the flexibility that banks enjoy within the MCLR system could create a fertile ground for variable pricing, say experts. "Banks have the option to fix the margins between the MCLR and the lending rate, which is nontransparent. The actual rate for the consumer may vary even within the same bank, depending on various internal lending criteria and product constructs," explains Patel. Banks are yet to provide clarity on these issues.
Therefore, while new borrowers do not have to make a choice between Base Rate and MCLR, the variations in their banks' approach within the MCLR system necessitates careful evaluation of the loan contract. "An annual reset is a close equivalent of annual fixed rate and quarterly reset will fluctuate depending on policy decisions," says Patel. While pointing out that the decision will depend on the borrower's cash flows and risk appetite, he picks quarterly reset option over annual reset in the current declining interest rate scenario. This would be applicable even to existing borrowers contemplating shifting to MCLR.

 

Author :-http://economictimes.indiatimes.com/

Reposted By :- http://credit4loan.com/

Peer to Peer Lending: $50 billion market in India

In the light of mounting Non-Performing Assets by banks, most of the financial institutions including banks have become wary of giving both secured and unsecured loans. "Due to limited availability of funds, a new form of crowd funding method of Peer-To-Peer (P2P) Lending has started in online space where those having excess capital can lend it to borrowers for an interest," said Prof. Saurabh Agarwal, Professor of Finance and Dean (Academics), Indian Institute of Finance, Greater Noida.
According to Prof. Saurabh, the portal which acts as an intermediary does not guarantee the payment and is only a medium where people can meet and lend or borrow. Both lenders and borrowers pay a commission to the online platform arranging this transaction.

From the legal perspective, crowd funding is regulated by SEBI and lending and borrowing is regulated by RBI. Hence, in this case both SEBI and RBI need to regulate the P2P lending. Lending through P2P has grown dramatically from 2.2 million GBP in 2012 to 4.4 billion GBP in 2015 according to P2PFA. Hence, this unregulated sector is growing many folds, said Prof. Saurabh Agarwal.

According to him, from the regulatory perspective in China, Ecuador, Egypt, South Korea and Tunisia it is unregulated. China has the largest amount of P2P loans amounting to $150bn and about 2600 lenders. In countries like Australia, Argentina, Canada, New Zealand, United Kingdom, it is regulated like an intermediary requiring registration and following a proper conduct of business. In UK, P2P loans are about 2.2 bn with around 347 lenders. In France, Germany and Italy, P2P lending platforms have to obtain banking licence, and make complete disclosure.
European Union has 250 P2P platforms with $3.9bn of P2P loans. In United States of America, some states ban the practise of P2P lending, while some states permit it in a limited manner. Also, it is regulated by Federal regulation and Securities and Exchange Commission. Despite dual regulatory authorities US has $ 6.6 bn of P2P lending and borrowing. In some countries like Israel and Japan, it is prohibited, said Prof. Saurabh.

Prof. Saurabh opined that P2P lending is mainly advantageous to borrower as it has lower cost of financing than raising money in unorganised sector. Also, the documentation is far simpler making it easier to accesses the loan. The lenders also benefit as they get a higher return than bank deposits.
According to him, since this P2P lending is growing at a very fast rate with more than 20 companies in last one year itself, it will be prudent to classify them as a NBFC and they should be subject to all the requirements of a NBFC. This should take care of all concerns related to money laundering and adherence to FEMA provisions.
Prof. Saurabh said that the minimum capital requirement of 2 cores recommended by RBI is unjustified keeping in mind that these are start-up trying to provide loans to people who do not otherwise have access to unsecured loans. The brick and mortar requirement, experienced directors, reporting requirement etc. as proposed by RBI look good on paper as despite all prudential norms been present for Indian Banking sector, we are still facing a huge NPA burden of Rs. 1.14 lakh crore of debt. Total NPAs till now is over 8 lakh crore.
He opined that rather than having such requirements which are similar to a bank, RBI and SEBI should think of out of box and put restriction on the people who may lend. This way only those lenders will access these markets who are flushed with lot of money and are not much affected with losses to the tune of Rs. 20 to 30 lacs. Initially, also, small lenders who look for quick gains should not be permitted to lend through this mechanism. As regards borrowers, only those borrowers whose credit worthiness is positive with CIBIL should be permitted to access funds through these P2P companies.
Prof. Saurabh strongly feels that without prudential regulations in this sector, these P2P companies will become Pseudo banks without a banking licence facilitating flow of money outside the purview of either RBI or SEBI which may prove to be disastrous in the light of India being a victim of terrorist attacks and in-depth study of the existing P2P platforms like i2ifunding, Faircent, I-Lend.in etc is also recommended before implementing any rules or regulations.
Registration may facilitate growth to $ 50 billion in India. Registration may also help these financial intermediaries to exploit the market stating registered with RBI and recognized by Government of India. In case P2P financial intermediaries are registered and regulated, an interest range need to be determined by the regulators RBI or SEBI. P2P would also facilitate liquidity to MSME and use of excess cash funds, felt Prof. Saurabh Agarwal.

Author :- http://www.merinews.com/

Reposted :- http://www.credit4loan.com/

Don't sweat it. Easy hacks to get a healthy CIBIL score

There are no quick fixes to become credit healthy overnight and there is no magic wand that will make all your credit score woes go away. However we do have a few suggestions that can help you in being credit healthy without break into a sweat or racking your brains. You could use one or more of these suggestions simultaneously to work towards getting a good CIBIL Score.

Check the credit limit: Your credit card limit is Rs. 100,000 and you run a bill of average Rs. 70,000 per month but you manage to pay it all on time so there is no problem; right? Wrong!

Credit utilization ratio is a ratio between the total available credit limit available to a person and what he/she utilizes per month. A high credit card ratio even if you are able to pay it on time is not good for the CIBIL score as it is an indicator of credit hungry behavior. There are two ways of dealing with this; the first obviously is to lower the credit card spending and the second could be to get a bigger credit limit. One can get in touch with the existing card issuer and get the credit card limit enhanced; this is possible if the card holder is eligible for a bigger credit limit. If this is not possible then one could explore the option of getting another card issued, this will increase the overall credit limit available and the user can spread his/her expenditure across both cards.

Remove the irritants from the CIR: Sometimes there are some old issues that we seem to have forgotten but unfortunately (for us) Credit Information Report (CIR) continues to remember it and carries it forward. These could be an issue like an old credit card due which was not paid and has since then grown bigger due to fines and charges being levied over and over again. Also there could be an open loan which has been paid in full but an NOC has not been taken. Sorting out any such issue may take time and requires patience but removal of any such irritant is bound to have an immediate positive impact on the CIBIL score.

Check for mistakes: There are times when the cause of a low CIBIL score may not be your own mistake but a mistake by some other agency. This can be detected only if one scrutinizes their credit report carefully. Just point out the mistake to the credit bureau and they will do the needful and get in touch with the required agency to remove the error from the CIR. There is simple mechanism available both online and offline for removal of any mistakes from a person’s CIR.

Avoid making unnecessary loan enquiries: This is not something that you should do but something that you should not do! Do not make any loan enquiries till you are sure that you require a loan and till you are fairly certain that you meet the required terms and eligibility criteria laid down by the lender. When any loan application is made, the prospective lender seeks the applicant’s CIBIL Report; this is known as a hard enquiry and impacts the CIBIL score negatively. A loan rejection means that one has to apply for a loan again which will generate another hard enquiry. Finding out about a bank’s policies for loan sanction is not difficult, if you really need a loan then apply to a bank where you are likely to get the loan sanctioned. Not being credit hungry is good for credit health!

Nothing beats paying on time: This is the simplest yet the best and almost the most important aspect to be credit healthy. This cannot be a onetime effort but it has to be a habit; being disciplined in payments goes a long way in keeping the score in the green. A delay is generally due to being forgetful or lacking discipline so set up reminders, put in auto debit mandate, use post its or whatever it takes but do not delay payments.

So hopefully this Labor Day you can get a good credit score or you can at least strive towards one by following one of the above simple yet effective ways.

Author :- http://www.moneycontrol.com/
Reposted By :- http://credit4loan.com/

You may be five steps away from a perfect CIBIL score

Maintaining a high credit score is not at all difficult. You just have to ensure prudent use of credit.
Have you ever wondered why there is such a clamor of late to maintain a high CIBIL score? Is all the information you are absorbing about CIBIL score and CIBIL report confusing to you and you have no idea how to get the perfect CIBIL score? What is the formula for success when it comes to achieving the perfect CIBIL score! Well, you may be happy to know that it is not difficult at all, and you may just be a few steps away from the perfect CIBIL score. Read on to find out how you can get there soon.

The importance of your CIBIL score

Your CIBIL score plays a very important role in your life today. Unless you have a perfect CIBIL score of 750 and above, it is unlikely that you will get access to credit when you need it. The Reserve Bank of India has made it mandatory for all lenders to look at the CIBIL score of any individual as a part of their credit assessment process. This means every time you apply for a new loan or a credit card, the lender looks at your CIBIL score to assess whether or not you are credit worthy.

In fact, your CIBIL score is not just relevant to your possibility of getting credit but may also impact your employment prospects. Corporations these days are increasingly asking for probable candidates to submit their CIBIL report along with other documents to assess whether or not they are responsible with their own credit and thus may prove to be an asset to the company by way of trustworthiness and responsibility.

Thus, there is no doubt about the fact that maintaining a high CIBIL score is of paramount importance. A perfect CIBIL score of 750 and above will open up doors of credit when you need it the most. But what must one do to achieve it? Well here are five steps that will take you closer to your goal.

No late payments

This is numero uno among rules when it comes to using credit. Whenever you have availed of a loan or a credit card, make sure that you are making timely payments or keeping your accounts furnished for an EMI to be deducted. Even a single late payment of 30 days and above will impact your CIBIL score negatively. In fact, with CIBIL considering mobile and other utility payments as a part of credit score assessment you must remember to pay all your bills on time too, to have the perfect CIBIL score.

Credit utilization

This is another important factor when it comes to your CIBIL score. Financial prudence says that your total credit utilization or the amount of credit you are using as against the total amount of credit been made available to you should not exceed 30%. This is a discipline you must maintain when you are using your credit cards. If used judiciously, your credit cards can build your CIBIL score, but if you tend to go overboard and end up overspending on it, you not only run the risk of lowering your CIBIL score, you may end up in a debt trap that may be difficult to get out of in a hurry.

Mix of credit

You must keep in mind that when it comes to your CIBIL score the type of credit that you are using also matters. Having too many unsecured loans such as too many credit cards or personal loans will impact your CIBIL score negatively. On the other hand, if you have a good mix of credit say a home loan and couple of credit cards or a vehicle loan and a personal loan, i.e a mix of secured and unsecured debt, your CIBIL score will remain high.

Too many hard inquiries

If you are in the habit of applying for every new credit card that come your way or checking out a loan for its prospects by making an application for the same, you need to stop doing so immediately. Each new application for credit results in a hard inquiry in your CIBIL report as the lender you have applied to checks out your CIBIL report. Too many hard inquiries on your CIBIL report does not augur well for you as it portrays you as “credit hungry” and makes lenders wary of lending to you.

An error free CIBIL report

CIBIL has to handle a large amount of data that comes in daily from the lenders who send information about their loan and credit card accounts to CIBIL. There is no way for CIBIL to apply a filter and see that all the information that is coming in from the lenders is correct. The onus is therefore on you to check whether the information that is relevant to you is correct. Thus it becomes very important for you to keep a strict vigil on your CIBIL report by checking it out at least once or twice annually. This is to ensure that your CIBIL report remains error free and your financial health is up to the mark

Thus as you can see, attaining the perfect CIBIL score is not at all difficult. By just maintaining financial discipline and consistency in good usage of credit you can ensure that your CIBIL score remains perfect at all times.

Author:- www.moneycontrol.com
Reposted:- www.credit4loan.com

Peer to peer lending: What you should know

While P2P platforms are gradually getting visibility, there is no regulation in place for such lending. While the RBI is constantly monitoring the growth of P2P lending, the borrowers and lenders remain at high risk until RBI comes out with a clear regulation policy.
If you are looking to raise funds for your business, bank loans are easily available under various lending schemes. However, procuring banks loans for business is not a cakewalk since business loans form a high risk category for banks.
So, if you are hoping to borrow funds without any collateral security or for a unique project which the bank may consider as high risk, you can consider a newly emerging alternative—peer-to-peer (P2P) lending, which is slowly becoming an acceptable alternative mode of lending. The numbers of P2P lenders have increased substantially, even attracting investments from angel investors.

Understanding Peer to Peer lending
Peer to Peer, or P2P, lending is a new concept in India, but has been active in the developing world for quite some time. It is based on the basic principle that you as a borrower get funded by multiple individual lenders. Therefore, unlike traditional loans, instead of borrowing one lumpsum from one lender, you borrow smaller amounts from multiple lenders.

So for example, if you need Rs. 5 Lakh for a project or for some commercial activity, you disclose your requirements on a P2P lending platform and investors willing to invest in your project will fund your project. The P2P platform will charge a processing fee from both the borrower and the lender.
Loans on offer by P2P Lenders

P2P lending offers micro finance, consumer loans and commercial loans. Personal and education loans are also available through P2P lenders under consumer loans. The popularity of P2P lenders, however, is for commercial loans where individual borrowers and lenders support one another financially.

Loan amount and interest rates

While there is no common body regulating the working mechanism of P2P Lending, each P2P lender has a different cap on the loan amount and interest rates. On an average, you can hope to get a personal loan between Rs. 25,000 to Rs. 5 Lakh. The upper limit for commercial loans can be as high as Rs. 30 Lakh. The loan tenure ranges from 6 months to as many as 5 years. Interest rates can be quite high and are in the range of 12-36% depending on the type of loan, the loan amount and tenure.

Working operation of P2P lending

To apply for a loan, you will need to register with a P2P lending portal. You can also sign up as a lender if you wish. To be eligible as a borrower, the P2P portal seeks your details, including your educational details, financial details, and employer details, etc. The portal will then check your credit worthiness by checking your credit reports like CIBIL etc, as part of their in-house verification.

Once the P2P lending portal verifies and lists you as a borrower, you will have to disclose all details, including the type of loan you need, the work you will be doing once you get the loan and all other details a possible lender should know. If any lender gets interested in funding you, he will approach you through the P2P portal.

RBI and regulatory concerns

While P2P platforms are gradually getting visibility, there is no regulation in place for such lending. While the RBI is constantly monitoring the growth of P2P lending, the borrowers and lenders remain at high risk until RBI comes out with a clear regulation policy.

For example, a borrower can go to multiple P2P lending portals and sign up and avail multiple loans for the same project. Any loans taken from P2P lenders will not get reflected in your credit score, which is again a high risk proposition for lenders. Each lender can offer you a loan at a different rate of interest as there is no regulation policy common for all P2P portals.

What you should do as a borrower or lender

Borrowing from banks or NBFC is a safer way of borrowing as compared to P2P portals. If you are still looking at P2P loans, or to register yourself as a lender, make sure you read the terms and conditions of the portal in detail. Each P2P lender will have different terms and conditions, so make sure you are fully aware of what you are getting into. Since there is no safety net for P2P lending, make a P2P loan your last priority unless RBI regulations are put in place.

P2P lending is gaining popularity and is a great way for people to raise money without the need for collateral security. However, without RBI regulation, such lending and borrowing remains a high risk affair.

Author:-www.moneycontrol.com
Reposted By:- Credit 4 Loan