What If A Borrower Defaults On Your P2P Loans?19 January, 2018
Every investment brings with itself some amount of risk. Even investments as direct and seemingly safe - such as real estate and gold, can go through hard times. It’s only natural then, if you expect P2P lending to cause an upset too. But you’re likely to overestimate your risk here. Like any other investment, you’ll need to guard against risks - such as defaulting borrowers.
When you are a beginner in P2P lending, it is prudent to check the collection support/effort the lending platform will provide, in case of borrower defaults. At Monexo, we are both proactive and transparent on these matters.
Here is a guide which would help you secure your P2P investments and lessen your worry.
Securing Your P2P Investments
P2P lending platforms follow a general process when it comes to dealing with delayed payments, which involve collection, recovery and other safeguards. Let’s study Monexo’s process in detail and understand what measures it provides to secure it’s lender’s money.
The Collection process at Monexo
Here’s an overview of the process at Monexo when a borrower is late on repayments and is moved to the collection process.
- 1. First Stage: Between 1 to 15 days of delay, Monexo sends out emails, followed by calls to the borrower notifying about the delay in repayments. At least 2 attempts for automatic deduction (using NACH debits) are made during this period, post which late fee penalties start getting applied.
- 2. Second Stage: If the borrower continues to delay his repayments (between 31-60 days), Monexo then authorises a collection team to do physical visits and collect the payments. The lenders don’t need to bother themselves with these visits as this is managed from Monexo’s end. By this time, the delay in payments start getting reflected in borrower’s credit history thus bringing down his credit score and significantly impairing his ability to get new credit.
- 3. Third Stage: At this stage between 61-90 days, legal measures will be initiated - including the filing of a legal case for recovery of pending dues. The penalties over delay will continue to be applied.
- 4. Last Stage : If the borrower still hasn’t repaid, the loans written off as an NPA per the RBI’s directives. However, the collection and legal recovery efforts made by Monexo will still continue
Bringing transparency to the collection process
At Monexo, significant technological investments have been made to ensure that lenders are able to track their P2P investments with utmost ease. All lender transactions with Monexo are logged and recorded and for every lender there is instant access to this information any time, any place
- • Once a lender logins to the Monexo dashboard, she/he can view her/his entire portfolio, along with currently open loans, all repayments, delays and other updates.
- • For all delayed payments, Monexo transparently updates all its communication with borrowers - including email exchanges, call recordings (even those that don’t connect) and other collection updates it receives during the entire process.
What other measures does monexo have to protect your investments?
At Monexo, we are continuously striving to develop innovative solutions to protect the interests of lenders. As part of this effort, we have launched Credit Shield. With Credit Shield, if a borrower is unable to honor his repayments due to some unforeseen circumstances, Monexo still has you covered. Credit Shield is a group insurance policy designed to protect lenders in case the borrower is unable to make his repayments.
For a borrower, there can be some unforeseen scenarios -
- • Such as a loss of job,
- • Accidental death, or
- • Even disability,
These scenarios can put the borrower’s repayment schedule in trouble. There is where Monexo’s Credit Shield steps in - it diverts the proceeds of the insurance to cover up to 100% of the lenders’ outstanding principal.
- • No paperwork for lenders - The borrowers make the claim, which is then processed and the claim proceeds are applied directly to outstanding loan amount
- • Completely free - And did we mention this is completely free for the lenders? There’s no premium or payments that you need to make to get this coverage
We’ll discuss Credit Shield in a separate post of its own soon.
But apart from the protection provided by the platform, there are additional ways through which you can protect your investment such as
- 1. Diversification - At Monexo, lenders can lend as low as 1000 Rs to single loan contract and thus spread there investments over a larger number of borrowers.Diversification is like the holy grail of P2P Lending. If your investments are adequately spread across multiple borrowers, the impact of delayed payments can be greatly minimised and the security of your portfolio significantly enhanced.
- 2. Loan selection as per your risk appetite - At Monexo, loan contracts are risk graded on a scale from M1 to M8 . M1 denotes a very low risk and thus a lower return and M8 denotes a high risk and thus are priced higher with high return for lenders. This internal grading allows lenders an unbiased perspective on the quality of the borrowers. Lenders are well advised to lend only to loan contracts that match their risk taking ability.