The benefits of borrowing from a peer with the security of an established lender: What you need to know about peer-to-peer lending.
Finding a personal loan with favourable terms can be difficult, whether it's to finance a new purchase or take back control of your existing debt. If you're looking for a competitive personal or business loan, considering options outside of traditional lenders can offer up some viable alternatives. One of these is peer-to-peer lending, an innovative new platform that is taking off in Australia.
Compare a range of peer-to-peer loans
- A and AA grade borrowers
- Must be employed
- Min. loan amount $5,000
100% confidential application
SocietyOne Personal Loan
The SocietyOne Personal Loan offer is the first Peer2Peer loan in Australia. It is a low interest personal loan with no ongoing fees. Borrow up to $50,000
- Interest rate from: 7.88% p.a.
- Comparison rate: 9.90% p.a.
- Interest rate type: Fixed
- Application fee: $3
- Minimum loan amount: $5,000
- Maximum loan amount: $50,000
The finder.com.au P2P lending comparison
Various lenders offer peer-to-peer loans in Australia, each with its own product offering and rate. The table below is a quick guide to Australia's P2P lending landscape:
|Lender||Loan types||Loan amount||Loan term|
|DirectMoney||Personal loans||$5,000 to $35,000||3 or 5 years|
|Harmoney||Personal loans||$5,000 to $35,000||3 or 5 years|
|Marketlend||Business loans||$2,000 up to $1,000,000||3 or 5 years|
|MoneyPlace||Personal loans||$5,000 to $35,000||3 or 5 years|
|RateSetter||Personal and business loans||$2,001 to $45,000||0.50 to 5 years|
|SocietyOne||Personal loans||$5,000 to $50,000||2 to 5 years|
|ThinCats||Business loans||$50,000 to $2,000,000||2 and 5 years|
|Bigstone||Business loans||$10,000 to $250,000||3 to 24 months|
So, what is peer-to-peer lending?
Peer-to-peer lending involves borrowing money from individual investors, where the "lender" simply acts as a facilitator for the loan. By lending their money, the investors gain access to an attractive fixed income asset class that can yield better returns than other investment options. Borrowers can also take advantage of lower rates that are based on their credit scores. All this is facilitated by a peer-to-peer lending platform that connects the people looking to borrow with people looking to invest.
Definition: Peer-to-peer lending is the practice of lending money to individuals anonymously through a third party company who facilitates the transaction.
How does it work, and could it work for you?
Peer-to-peer (P2P) providers do not match individual lenders directly with a borrower. Rather, they enable the lender to invest in a portfolio of consumer loans. In other words, the P2P provider facilitates a platform where investors can finance a portfolio of loans and earn interest on what they lend, while borrowers are given an individual rate based on their credit score.
- Borrowing from a peer-to-peer lender. To borrow, you submit an application with the P2P lender. The provider then evaluates your eligibility by verifying your identity, credit history, employment and financials. It will assess the risk of the loan and give you a personalised interest rate. You will generally need to have a good credit history and be in a secure job to be eligible. After approval, your loan will be funded by one or several investors that choose to take you on. The P2P provider will usually deduct an application fee from the amount transferred.
- Investing in peer-to-peer loans. Potential investors review the available applications on the website and identify the borrowers they would like to fund, in part or in full. Investors will not be able to see any personal information from borrowers. Funds are then transferred to the borrow and their repayments will be made to the investor based on how much of the loan they funded.
The Government Backed Guarantee on Deposits was set up to protect investments up to $250,000. They do not apply to funds in peer-to-peer lending as it only applies to institutions authorised by the Australian Prudential Regulation Authority (APRA).
How is peer-to-peer lending revolutionising the Australian financial landscape?
Given the ease with which many people – investors and borrowers – can secure loans at favourable terms via P2P lending, it is clear that these providers are here to stay. Though small at present, the peer-to-peer industry is eyeing a big potential market. Its convenience and reasonable interest rates enhance its appeal in comparison to mainstream financial institutions. This is also the first borrowing platform to open up the doors to smaller investors looking for higher and more secure returns.
It is unlikely that the P2P industry will replace banks altogether as they only provide specific types of loans as opposed to the plethora of loans offered by banks. Yet, in many ways, banks have not been able to adapt their personal loans to changing times. They offer the same interest rates to both low-risk and high-risk borrowers. In addition, their service levels and processing timeframes can be lengthy, although this has been improving.
By harnessing technology and offering tiered interest rates to borrowers based on their credit scores, P2P providers can provide a more convenient alternative to banks and other financial institutions.
Weighing up the benefits and drawbacks of P2P
- Borrowers are able to secure loans at rates generally lower than those offered by banks
- A speedy application process that's administered online
- P2P lenders offer lower loan amounts than banks, usually only up to $35,000 for a personal loan.
- A higher return on funds than compared with other investments
- The opportunity to diversify your investments in addition to spreading your funds over several loans for minimising your risks
- Lenders will need to know that there is no government-backed guarantee on the funds they provide.
"How do I compare my options?"
- Are they compliant?
Check the credibility of the website or platform that you’re considering. They should have a credit license listed on the bottom of the page, and check what banks or services they are affiliated with.
- What rates are you being offered?
The rates offered by the peer-to-peer lender are usually lower than those offered by the banks, but you should also see whether they are fixed or variable.
- What fees are associated with your account?
Take a look at the comparison rate to see how much the loan is likely to cost you with the fees included, and remember to check whether you will need to pay any upfront fees to set up the loan.
- What are your loan terms and the amount you are borrowing?
Some peer-to-peer lenders may not be able to offer you as high a loan amount as other banks or lenders, so check to see that you’ll be able to borrow what you need for as long as you need it.
- Have you researched the lender’s reputation?
The lender’s reputability should also form part of your comparison. You might want to read independent customer reviews online, see how easy the lender is to be contacted, and how transparent they are with their fee and rate information.
- What are the requirements for an investor?
As a borrower, you want to ensure the person you will be borrowing from is reliable and that the lender has strict guidelines in place to ensure no unscrupulous investors find their way into the lending network. Check out the lending requirements before you apply to see the type of people you will be borrowing from.
- Are you eligible to become a borrower?
While you want to check that you are eligible, you also want to ensure that the peer-to-peer network doesn’t have borrower eligibility criteria that’s too relaxed. Some overseas peer-to-peer networks who started lending to borrowers with bad credit failed due to a high number of defaulted loans, so you want to ensure the lender you go with doesn’t engage in high-risk borrowing behaviour
Peer-to-peer lending is an alternative credit option to consider. With competitive rates, quick approval times, and not to mention a way for investors to diversify their portfolio, peer-to-peer lending is making its mark on the credit industry.
Frequently asked questions about P2P lending
Who is lending me the money when I take out a P2P loan?
The funds will come from an individual or group of investors. These investors will have signed up with the P2P lender you applied with and have chosen to lend you money (either by choosing your loan specifically or by you meeting the investor's credit requirements). Remember that none of your personal information will be divulged during this process.
How do I repay a P2P loan?
A peer-to-peer personal loan is usually repaid via direct debit. The money is then transferred either directly to the investor or into an account that they can withdraw from.
How do investors choose who to lend to?
Investors either select a risk grade that they are willing to lend to – low risk, high risk, etc. – and then are matched automatically with borrowers that match it or they choose loans individually. These loans can be funded in part or in full.
Am I eligible to borrow?
Eligibility criteria differ between lenders but you generally need to be over the age of 18, employed and earning over a certain amount each year (for example $35,000 p.a.) and have good credit.
Can I take out a peer-to-peer business loan?
Yes – check the table above for details of which lenders offer business loans.