Technology is increasingly shifting towards progress. Even the presence of technology now seems to be inseparable from our lives because everything feels easier and faster. This makes changes in people’s lifestyles, including the financial sector. Now anyone can send money without the need to go to a bank to borrow money online or commonly known as fintech peer-to-peer (P2P) lending.
The fintech P2P lending is currently growing rapidly and is easily accessible to people who are still having difficulty getting loans and for small business who need capital to develop their business. Not only small businesses, there are also fintech P2P lending that provide access to loans for those who need funds for education and health care with their own standards, starting from loan creditworthiness, loan nominal and tenor, interest rates, to the level of security.
fintech lending/peer-to-peer lending/ P2P lending is a lending and borrowing service directly between creditors/lenders (lenders) and debtors/borrowers (loan recipients) based on information technology.
Fintech P2P lending creates an online platform that provides facilities for fund owners to provide loans directly to debtors with higher returns, while loan borrowers can apply for loans directly to fund owners with easier conditions and a faster process than conventional financial institutions.
Investment in P2P lending provides a promise of quite high returns per year, but investing must be in accordance with our profile and risk appetite and how to manage it. Therefore, the very first step in the investment process in P2P lending is to understand the risks. Don’t let yourself invest funds without knowing the level and type of risk faced.
The way P2P lending works is as follows:
- Membership registration. Users (lenders and borrowers) register online via a computer or smartphone;
- The Borrower makes a loan application;
- The P2P lending platform analyzes and selects eligible borrowers to apply for loans, including determining the borrower’s risk level;
- Selected borrowers will be placed by the P2P lending platform in the online P2P lending marketplace along with comprehensive information about the borrower’s profile and risks.
- P2P lending investors analyze and select borrowers listed on the P2P lending marketplace provided by the platform.
- P2P lending investors make funding to selected borrowers through the P2P lending platform.
- The borrower returns the loan according to the loan repayment schedule to the P2P lending platform.
- P2P lending investors receive loan repayments from borrowers through the platform.
For borrowers, the benefits of P2P lending are that the loan application process is faster and easier and there is no need for collateral. But keep in mind that borrowing in P2P lending also has risks, namely high loan interest rates and fines that must be paid when you are late paying. Make sure you borrow according to your needs and ability to pay.
Meanwhile, for lenders/lenders, this P2P lending system will make it easier for you to diversify your funding, thus increasing your chances of making a profit. However, if the lender has allocated money through P2P lending, the lender cannot withdraw the money funded whenever you want and there is a possibility that the borrower will experience default, so that the funds lent have the risk of default.
For this reason, diversification is needed so that you don’t just put your funds in one borrower but can also send it to several other borrowers to minimize risk, moreover, it’s also made easy for lenders with risk grade information (risk level) determined by the P2P lending platform so that lenders can consider carefully before giving a loan. Event better, some P2P lending platform provides 100% insurance for the fund being lent, with a lower return compare to funding without insurance.
P2P lending is a good option for investors because the platform made easy for investors to select investment option available based on the borrower risk’s profile. Newbie investor can choose funding with insurance to make sure 100% return on investment even though the profit is smaller than the one without insurance.
