P2P lending vs Credit Card Debt: Is shopping on your mind but you are running out of cash? You can still fulfil your wish by using any of the two options - Credit Card or a P2P loan.
P2P lending vs Credit Card Debt: Is shopping on your mind but you are running out of cash? You can fulfil your wish by using any of the two options – Credit Card or a P2P loan. While Credit Card is already a popular instrument of payment allowing users to shop now and pay the due next month, Peer to Peer (P2P) lending is slowly gaining ground. For credit card users, the credit card company lends the money for immediate payment. The underlying promise in credit card payment is that the user will pay back the full amount to the credit card company within a stipulated time or pay penalty in terms of high interest on the credit amount. This interest rate is usually high on credit card debt. In contrast, P2P lending allows a person to get a loan directly from another individual via online medium.
Talking about features of P2P lending, Sangeet Modi, Director, IndiaMoneyMart, told FE Online, “P2P loans come at a fractional cost in comparison to the interest cost on credit cards nor are the finance charges exorbitant.” IndiaMoneyMart is an RBI registered NBFC-P2P Lending Startup founded in August 2015.
Is P2P loan better than Credit Card?
Both instruments have their advantages and disadvantages. Take for example the Credit Card first. Modi said, “With a good financial discipline wherein credit card payments are always made in full by the due date, it is a beneficial credit channel but straying can lead to heavy losses.”
In P2P lending, he said, “There is flexibility of repayment tenures in P2P loans provided to borrowers.”
Now, suppose you plan to do shopping of Rs 50,000 or Rs 1 lakh in the ongoing festival season. Here’s how paying with Credit Card or taking a P2P loan will play out for you:
Credit card payment is good if you can repay the full amount by the end of your billing cycle. Or, you may end paying a heavy penalty if you fail.
In case of P2P loans, you may get easy repayment terms over a tenure. This will help you keep some money in hand for emergency.
One advantage of credit card is that the credit is available instantly. This may not be the case with P2P loans. Modi said, “P2P loans will offer easy repayment terms and spread the cash outflow through a given tenure and help with maintaining liquidity during a crunch. Moreover, the users save a lot of money as interest cost is less in P2P loans. But, most P2P loans are not instantly available unlike a credit card and would require a bit of planning before the purchase decisions are made.”
P2P loans can also be availed by those who don’t have a formal credit history or a credit card.
Note: It is a bad idea to take a loan for shopping, unless you are buying something that you really need.