Reply To: Hi all, I’m interested in understanding the potential risks associated with peer-to-peer lending. Does anyone have insights or personal experiences they could share on this topic?

[Victor Epand]

Borrower defaults can range from 0.1 to 2% industry-wide.

How this affects returns and the possibility of principal loss:
If, for example, you’re earning a 15% return and face a 2% default rate, your net interest drops to 13%. As for losing principal, it’s not an issue since your earnings still include that 13% interest.

Concerns about the platform shutting down:
Transactions are safeguarded through an Escrow account, a globally recognized model, managed by a bank trustee. This means the agreement between borrower and investor remains intact regardless of the platform’s status. In India, underperforming platforms might merge with or be acquired by larger entities, as seen with the Satyam case by MM.

Observations on missing out due to hesitation:
Interest rates in P2P lending have seen a decline; from 18% in 2017, they’ve dropped to 12% in 2020, and are predicted to reach 8% by 2023. It’s advisable to be strategic and embrace some risk. Incorporating P2P investments as 20% of a portfolio can contribute to its robustness.

The importance of platform selection:
Choosing the right platform is crucial. After thorough research, I’ve identified some reputable options. For more information, refer to Bhanu Prakash Reddy Chaganti’s insights on the safety of P2P investments in India and recommended platforms.

Invest smartly for favorable returns, and don’t miss this second chance to benefit from the journey of interest rates.