Select the Best Guide to P2P loans

 

How does P2P lending work?

Peer-to-peer (P2P) lending involves a non-bank organization, which acts as a go-between for investors looking for a return and borrowers looking for a personal loan. The 'peers' in P2P lending are the person looking to borrow and the investor who is seeking to lend their money in return for an agreed rate on return. The go-between is a web-based P2P platform that manages the interaction between the peers to set up and administer the loan.

 

Who is lending me the money when I take a Personal loan with a P2P lender?

The P2P lenders acquire the funds that they lend to consumer from 2 sources, from private investors and institutional investors. These investors decide how much they wish to invest, and how this money will be used, though the extent to which the investor chooses how their money is used, varies by the marketplace lenders. For example some platforms enable investors to fund a specific loan or a number of loans and select the minimum interest rate they will accept for their investment and the term they wish to offer the funds for. The less flexible platforms offer far less choice, with pretty much all the choices noted above made by the marketplace lender.

Investors who are participating in P2P lending are attracted to this investment opportunity by the attractive rates of interest rate they are offered for their investment, which are generally significantly above those of high interest savings accounts levels circa 5% above current term deposit rates.

 

Why should I consider a personal loan from a P2P lender?

An increasing number of borrowers are including P2P personal loans in their loan comparisons as they generally offer some of the lowest personal loan interest rates. Although still relatively new, P2P lenders have provided personal loans to 100’0s of Australian’s with Car Purchases, home renovation and weddings being amongst the most popular reasons for taking out the P2P loan.

 

Apply in for P2P Personal Loan

The application process for aP2P Personal Loan is pretty much the same as a personal loan offered by the major banks, where you will be asked to provide details that the provider will then use to access your suitability for a loan. The details you will need to provide will include:

• You Personal details - Name, residential address and date of birth.
• Contact details - email address, phone number
• Employment details - confirmation of your employers details and how long you have worked with this employer
• Income details - confirmation of your monthly salary and any other income sources you may have.
• Expenditure details - confirmation of your monthly expenses, including any loans, credit card payments, school fees and living expenses.

All the details you provide in your application are held by the P2P lender and kept confidential in accordance with their privacy policy, a copy of which you will find on their website.
Once you submit your application the P2P lender will access your suitability by checking your credit history and estimating your ability to repay the personal loan. This assessment generally takes 24 hours after which the P2P lender advice you on the decision on your application.

 

Making loan repayments

To repay your P2P personal loan you will simply make payments to your marketplace lender, generally by Bpay, who then passes these funds back to the investor at agreed intervals.

 

How can P2P lenders offer such low personal loan interest rates?

Personal loans from Peer to peer lenders can only be applied for via the market place lenders web sites, by limiting applications to online the Peer 2 Peer lenders are keeping their costs low. These savings are passed on to P2P borrowers in the form of lower interest rates. Secondly P2P lenders use a tier based pricing system that is designed to reward the applicants with excellent credit history with the lowest interest rates, it is these low rates that the P2P lenders feature in the advertisements. Applicants with less than perfect credit reports may still be accepted by the P2P lenders though the rate offered will generally be higher than those advertised.

 

Am I eligible to apply for a peer to peer personal loan?

To apply for a P2P Personal Loan you will need to be 18 years old and be an Australian resident.

To be offered the low rates advertised by the P2P lenders you will need to have an excellent credit history with no blemishes and be in stable employment with sufficient income to easily cover the monthly loan repayments. If your credit history is less than perfect your application may well be accepted though the interest rate you will be offered will be higher reflecting the lenders perceived greater risk of lending to you.

 

How much can I borrow from a P2P lender?

The maximum amount P2P lenders offer as a personal loan is generally $35,000 with terms from 1-5 years available on these loans. If you are seeking a greater amount you will need to broaden your search to include the traditional personal loan providers who offer up to $100,000, with terms up to 10 years.

 

What features do P2P Personal Loans include?

P2P Personal Loans offer pretty much the same features as those offered by the established personal loan providers, these include:

• Extra repayments facility - This ability to make extra repayments above the required repayment is handy if you find yourself with some spare cash across the loan term. By making extra repayments you stand to save on interest charges whilst also reducing the term of your loan.. For example, if you sign up for a $30,000 personal loan over 5 years with a 9% p.a. rate and make an extra repayment of $200 each month this will save $2,187 in interest and reduce your personal loan term by 17 months.
• Redraw facility - Having made extra repayments this facility provides the flexibility of being able to access the value of these extra repayments as a redraw.
• Flexible repayment frequency - More frequent repayments will save you interest charges, so the ability to make fortnightly, as opposed to monthly repayments on your personal loan is worth looking out for.

 

Who are the major peer to peer players?

In Australia there are 5 main marketplace lenders offering P2P loans:

SocietyOne - The first peer to peer platform launched in Australia in 2012, SocietyOne has a unique lending model which is designed to connect wholesale investors with personal borrowers. Personal loans from $5,000 - $35,000 over terms of 2-3 years are offered by SocietyOne.

The funds invested by the Wholesale investors with SocietyOne are spread across many different loans with the objective of reducing the risk to the investor.

RateSetter - This is Europe’s largest P2P lender who launched in Australia in 2014 as the first peer to peer lender to offer investment opportunities to individual investors and has recently introduced the concept of a provision fund designed to protect lenders if the borrower defaults on the personal loan. Personal loans from $2,001 - $35,000 for up to 5 years, are offered by RateSetter.

RateSetter was the first P2P lender to release its loan book data in Australia. A clear indication that RateSetter is making ground in the area of car loans was the investment made by Carsales.com.au and its joint venture Stratton Finance who recently acquired a combined 20% stake in RateSetter Australia

MoneyPlace - This recent entry to the market, founded in Melbourne in 2015 has recently partnered with Auswide Bank to accelerate its growth. Unsecured Personal loans from $5,000 - $35,000 are offered by MoneyPlace.

Investors funds are spread across a portfolio of loans, similarly to SocietyOne, to diversify their risk. MoneyPlace investors are able to select a risk profile and receive a loan portfolio in line with that preference.

DirectMoney - This ASX-listed market Place lender offers personal loans up to $35,000 with terms of 3-5 years. Through it’s tiered interest rate approach it claims to offer personal loan rates up to 4% lower than the established personal loan providers.

Harmoney - Following a successful launch in New Zealand Harmoney recently launched in Australia offering personal loans of up to $35,000, with terms of 3-5 years.

 

Peer to Business Market Place lenders

Marketlend provides business loans, personal loans and car loans from $2,000 and $1 million and is a Peer to Business lending platform. It is a wholly owned subsidiary of Tyndall Capital Pty Ltd. Borrowers must be a business which is operating and is registered as a limited liability company, or limited liability partnership or sole trader with an Australian Business Number and unlike P2P lenders Marketlend lists loans on its platform which investors bid for the right to fund the loan.

ThinCats Australia offer P2P business loans from $50,000 and $2 million. These loans are offered to smallto medium sized businesses who are seeking to fund the next stage of their operations. Terms can vary between 6 months and 5 years.

 

In summary - Pros of P2P lending

For borrowers

• Borrowers are able to secure loans at rates generally lower than those offered by established personal loan providers.
• A fact & convenient application process that's managed online

For investors

• A higher return on invested funds when compared with other investments
• The opportunity to diversify your investments and choose the level of risk.