How Safe is it to Invest Money in Peer to Peer Lending?

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How Safe is it to Invest Money in Peer to Peer
Lending?
-LenDenClub
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Investors are often apprehensive about lending
money online. However, it is quite safe due to
risk diversification, borrower profile
verification, transparency and RBI
regulation. The peer to peer lending in India,
though growing popular as an alternate credit
investment, is still in the infancy stage in
comparison to that in China and the United
States. Hence, the first-time P2P lending
investors often worry about the safety of their
money while lending money online.  While no
investment is 100 risk-free, P2P lending is
a safer option for the investors owing to the
following factors
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Lower Investment
You can start investing P2P lending with an
amount as low as Rs.5,000. So, you are not
putting a higher amount of money at risk in one
go. You can start slow and test the waters before
investing more.
Risk Diversification
Lets say, you want to invest 5 lakhs. Now,
instead of lending money online to one single
borrower, you can disburse the amount between at
least 3-5 borrowers. This will diversify your
risk in case one of the borrowers defaults.
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Borrowers Profile Verification
The peer to peer lending companies in India do an
internal credit evaluation to verify their
personal, professional and financial information,
digitally as well as personally. They assess the
creditworthiness of the borrowers and take care
of the documentation. Hence, you are saved from
the trouble of conducting due diligence on your
own, which may not be possible due to lack of or
limited resources.
RBI Regulation
RBI has already proposed peer to peer lending in
India as Non Banking Financial Institutions
(NBFCs). It is in the process of regulating the
sector to protect the interests of all
stakeholders lenders, borrowers and P2P lending
platforms. The P2P lending companies would have
to submit regular performance reports to RBI.
Hence, the sector is expected to become more
organized and transparent. The ideal way to
ensure the safety of lending money online is to
first assess the P2P lending platforms on the
various parameters listed, and invest only
through a reputed and trustworthy platform such
as LenDenClub.
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