Peer-to-peer lending: How you can leverage this space

Posted by Bessie Hassan | Money Expert at • 3 May 2017 • Tags:

It’s a relatively new concept, but peer-to-peer (P2P) lending is certainly making waves in the finance industry at the moment. P2P lending is useful for many borrowers (and investors), so if you’re in the market for a new personal or business loan, it could be worth looking into. 

It may be unconventional, but P2P lending can provide you with more attractive interest rates and a faster application process than a traditional loan. 

So how does P2P lending actually work? 

It involves borrowing funds from an investor who acts as a facilitator for the loan. As a borrower, you can take advantage of personalised interest rates based on your risk profile. That is, if you have a good credit score you can access lower interest rates, as the investor will see you as a low-risk borrower. 

So what’s in it for the investor? Well, investors also benefit from an attractive fixed income class that can potentially provide higher returns than other investment options. So it’s a win-win scenario. 

Engaging in P2P lending can enable you to secure an interest rate that’s typically lower than those offered by traditional lenders and it also allows you to enjoy a faster application process as there are less hoops to jump through. 

On the other hand, it’s worth noting that P2P lenders generally offer lower loan amounts, so you may only be able to borrow up to $50,000 for a personal loan, which can be limiting. There’s also the obvious drawback that P2P lending is not backed by a large corporation and there’s no government guarantee if anything goes sour with the lender. 

When comparing P2P options, here are some questions to ask both yourself and your potential lender. 

1) Is the lender compliant?

It’s sensible to do some research to check the reputation of the website or platform that you’re thinking of signing up with. If you jump onto their website, you should see a credit license listed at the bottom of the page and you should also see what banks they’re affiliated with. 

2) What fees are involved?

It’s worth looking at the comparison rate to see what fees are included with the product. Like other loans, it’s likely you’ll also need to pay an application/establishment fee, so check this before signing up. As a rule of thumb, application fees are generally around 3-5% of the loan amount. 

3) What interest rate will I get?

It’s important to know whether you’ll be paying a fixed or variable interest rate and what rate you’ll actually be paying. Ask the lender how they determine their interest rates so that you understand why you’re being charged your specified rate. If you’re taking out a fixed rate loan, depending on the lender (and your credit score), you could be looking at a rate of around 7-9%. 

4) How are repayments made?

P2P loan repayments are normally made through a direct debit to the investor or the facilitating platform. Speak to the lending platform about how repayments should be made and find out whether they have a preferred method and how frequently you need to pay.

P2P lending may not have been on your radar before, but if you’re prepared to do your research and you’re in a position to comfortably service a loan, it could be an option worth exploring. With personalised interest rates, P2P lending can help you access more competitive rates and be rewarded for responsible financial behaviour (although it may swing the other way too!). 

Author: Bessie Hassan | Money Expert at