Peer to Peer Lenders Vs Banks: 26 Features Comparison

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In a credit hungry world, access to getting credit from big financial institutions is very difficult due to the ever rising defaults affecting profits. And even if your loan is approved after lot of efforts, worry does not end here. Because finally getting money is what consumers expect but it is time consuming. And that’s where peer to peer lending companies gain an upper edge. They nullify the involvement of banks.

“Simple borrowing is the motto of every peer to peer lending company”. 

Advantages for lender: They earn more interest, which means higher returns, compared to savings account or other investment products.

Benefits to borrower: Take a loan at low interest and pay loans/credit with any bank with higher interest. Chances of getting loan are higher as P2PL does not solely rely on CIBIL score. Check out how to get personal loan when your CIBIL rating is low.

PTPL vs Banks

Here are the comparison or key differences between peer to peer lenders and traditional financial institutions:

FeaturesPeer to Peer Lending (PTPL) CompaniesFinancial Institutions
Who is the lenderIndividuals/CompaniesBanks
Loan amountSmall compared to banksHigher loan can be disbursed depending on the applicant's status
Interest rateVaries but low compared to banksVaries but high compared to PTPL
Is interest rate fixed?No. It is decided between lender and borrowerFixed as decided by bank
Is EMI fixed?No. Decided between lender and borrowerFixed as decided by bank
Loan approval processFastFast but not with all the banks
Loan amount transfer speedWithin 3 daysTakes minimum 1 week
Charges involvedListing, processing, late payment etc. but less compared to banksVarious charges such as processing, prepayment, preclosure etc.
Hidden chargesNoYes
Late payment chargesYesYes
Prepayment/Pre-closure chargesNoYes
EMI payment optionsAuto-debit is mandatory by most. But varies with each lenderMultiple options - direct debit, cash, cheque etc.
Loan evaluation processPersonal, Professional, Social and online spending behavior is checkedSame as PTPL but social and online spending behavior is not assessed
Data securityHighly secured and not shared or used for any other purposeHighly secured. But banks can use data to offer other products.
Credit risk assessmentDone. But not by every lender.Done by all banks
Credit bureau data sharingShared but not by every lenderDone by all banks
Documentation processVery simpleTedious
Document upload option on websiteYesNo
Recommended to
Poor income, low CIBIL score, no credit history, small loan amountEveryone
Loan rejection chancesLowHigh
Collateral NeededNoNo. But it is required, when taken against FD or LIC policy.
Is loan guaranteed?Higher chances compared to banksDepends majorly on credit history
Regulated by RBINoYes
Any free services offered?Few lenders offer free credit reportNo
Cancellation chargesVaries but there is no charge if cancelled within 24 hoursYes
Loan amount transfer processDirectly to the borrower's bank accountCheque, demand draft or NEFT

How it is profitable for lenders to offer loan?

Obvious question that comes to mind is how PTPL companies manage to be profitable even though they charge less interest?

Here are the main reasons why P2PL companies make profit:

No transaction cost: Since the whole process right from application to loan disbursement is online, there is no transaction charge involved. So less manpower and reduced operating cost.

Higher number of applicants: And as mentioned above, the pool of applicants is large, loan amount granted is small, and interest rates offered are on a lower side. So money pooling is at a bigger scale and overall interest earned is high compared to the rates offered on other investment options for e.g. savings account.

Check out more details on getting personal loan from peer to peer lenders.

Basically P2PL’s are risk takers offering credit at low interest rates. So individuals seeking personal loan for small amount or with low income or poor CIBIL score or no credit, can apply for loan at peer to peer lending companies. The chances of getting loan are higher as there are multiple lenders i.e. individual’s or entities. Moreover you can bargain with each lender on the loan amount and interest rate.

And be it India or anywhere in the world, the importance of PTPL is growing at a rapid pace.

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