Peer-to-peer loans

Get lenders to bid for your loan on a peer-to-peer platform

Customers with bad credit are now able to get easier loan approval via peer-to-peer lending. Your application is considered by many lenders, who bid against each other with customised terms and interest rates.

Although marketplace lending in Australia is significantly lagging behind the US and the UK – it’s grown rapidly in the last few years and is becoming more and more popular among both investors and borrowers alike.

What a marketplace loan can be used for

Peer to peer loans can be used for anything that a typical personal loan can. This includes buying a car, financing a holiday, renovating your home or paying for a wedding.

With regards to a business marketplace loan such as those offered by MarketLend they can be used to finance a business premises makeover, to buy stock, buy or repair equipment, purchase a vehicle and even fund a new branch or to pay wages for new staff.

What is a marketplace loan?

Marketplace loans are loans given to individuals or to businesses directly by investors. This means that there is no middle man – as you’d encounter with a bank loan, Most P2P lending platforms such as SocietyOne who offers personal loans to individuals and BigStone which offer business loans to SME’s – are lending platforms.

These platforms allow investors to sign up and individuals or businesses to apply for loans from them. Once their loan applications are approved their requests are published on a “marketplace” where investors will get the opportunity to fund parts or a whole loan based on their own investment goals.

Better than a bank loan?

P2P loans are in most instances cheaper than a personal or business loan from a bank simply because the P2P platform incurs significantly less operating costs.

This is because the platform is generally just a website with small to medium teams of people managing the site, administering and reviewing loan applications and essentially no face-to-face contact with customers or investors.

On the other hand banks have teams of thousands of people, have to open and manage multiple branches across the country and interact with customers face to face.

In addition to the comparatively low operating costs of a P2P lender they also typically offer customers much faster turnaround times since there’s no physical paperwork and no red tape to overcome.

A summary of benefits for borrowers

• P2P loans carry lower interest rates
• There are typically very low or nonexistent fees
• The whole process of applying can be done online
• Save time by not having to fill in paperwork or gather supporting documents
• Businesses can typically link to their accounting software and skip the document preparation
• No red tape means you can get your loan faster
• You can repay any P2P loan early with no penalty fees

What’s in it for the investors?

The short answer to that question is above average return on investment. Investors who are not satisfied with the returns they get from typical investment accounts and opportunities typically see P2P lending as a way to get greater returns with minimal risk.

Although their money is typically secured by the P2P lender or platform they can choose to invest their cash into very low risk borrowers or businesses for a lower return or choose to invest in higher risk businesses for greater return. In addition they can choose to invest in one loan or many smaller ones – depending on their own goals and wishes. It is worth noting though that some platforms do not let the investor see any details about the borrower and their money is invested as per the platform’s wishes.

The requirements to get a P2P loan

Even though you can get a marketplace loan much faster than a bank loan and there is no red tape to deal with – it is by no means “easy” to qualify for a P2P loan. For individuals they will still have to have a decent credit history and be able to prove affordability just as with any other lender or loan product out there.

For businesses you will still have to have been in operation for a given period of time, have a certain turnover and, of course, have a valid ABN. Each individual lender will obviously have their own list of requirements for borrowers to comply with but, as mentioned, it is not much easier to qualify than it would be with a traditional loan.

How peer-to-peer lending works

An investor looking for above average returns invests their money into a marketplace lending platform and indicates his level of desired risk versus return ratios or invests his money as he sees fit via a marketplace where he will bid to “buy” a loan.

The borrower will make their way to the lending platform and register as a borrower. They will then need to make a loan application online after which the platform will verify their identity, run a credit check, review their details for accuracy and so on to determine if they qualify for a loan or not.

Bankrupt individuals or those with a bad credit record will almost never pass this stage as that level of risk is too high for both the platform and investors to accept. The administration team will also see if their loans will meet your specific needs based on how much you’re looking to lend and for how long before sending you notification of approval.

Now your loan request will be posted to a marketplace where investors will directly bid for your loan. If you are declared a “low-risk” borrower you loan is going to be bought over much faster than someone who has been declared a “high-risk” for obvious reasons.

Comparing P2P loans

Many P2P loan products are included in the country’s top loan comparison websites include peer-to-peer loans in their loan comparison tables, however, for the sites that don’t, you may have a difficult time comparing your options.  That said, there are only five major peer-to-peer lenders that offer personal loans and a further four that offer business loans or invoice financing.

We have listed all the peer-to-peer lenders currently operating on the Australian market for you to review. The below list will make it easier for you to find what you’re looking for and to compare offers and terms without looking at platforms and lenders that are irrelevant.

One of the best ways to compare deals is to find and use the comparison rates of all marketplace lenders. This is because the comparison rate includes not only the interest rate but also any fees that you may incur which is something that is very often overlooked by borrowers.