Planning to lend on a P2P platform? Avoid these 5 common mistakes07 December, 2018
Lending money to someone, ensuring regular interest payments, and eventually the return of principal on time - it is a tough job.
Lending money to someone, ensuring regular interest payments, and eventually the return of principal on time -- it is a tough job. Sure, P2P platforms make the task a lot easier for lenders. However, first-time lenders on these new digital platforms still find the task arduous. Here are a few common mistakes you can avoid and make money on a P2P lending platform.
Chasing high returns Interest rates as high as 35 per cent can lure you to invest in P2P lending. But lending with the sole objective of earning very high returns may not be a great approach. Investing only in high risk borrowers may backfire.
"Don't forget that higher the returns, the higher the risk. Whenever you are investing in a new financial product, it becomes important to start slowly and gauge how you are succeeding in your investment plan. Always start with small investments across different products. After gaining adequate experience you can decide on how to build your portfolio for the long term,” says Bhavin Patel, Founder and CEO, LenDenClub, a P2P platform. "A prudent approach would be to have balanced funds in a savings account, FDs, MFs along with instruments like P2P loans to ensure adequate safety as well as liquidity. Taking available funds, especially if you have no other savings, and investing on a P2P platform lured by the lucrative returns is a pitfall you should avoid," says Dhiren Makhija, CEO, Cashkumar.
P2P platforms usually divide the borrowers in risk categories depending on their repaying capacity. A higher interest rate depicts higher risk of repaying while the borrowers with lowest interest rates indicates the least risk of defaults.