Peer-to-peer (P2P) lending is becoming more popular in Australia. It involves borrowing money from individual investors. By lending their money, the investors usually get a more attractive return than they do on a lot of other investments, and for borrowers there is the advantage of generally lower interest rates than those offered by traditional lenders.
P2P loans are facilitated by a peer-to-peer lending platform that connects the people looking to borrow with people looking to invest.
P2P offers personal loans only. Not mortgages. Usually for a personal loan the limit is around $35-$40k, for business loans it is higher.
And, as with anything, there are pros and cons. Two major factors to consider are:
- Check the rate you’re being offered. If you’re looking into P2P lending because you have a shaky credit history or an unusual, sporadic income, then you could be charged higher rates, comparable, when all factors are considered, to what you’d be offered by a traditional lender. So shop around. Find out whether the interest rate fixed or variable. Consider, is the repayment structure flexible … will it suit you over the course of the loan if your circumstances change? What are the early payback options or penalties? Read the fine print.
- Is the lender compliant and does the lender have a solid reputation? P2P lending is relatively new in Australia, so do your homework – how does the lender stack up? Will you be able to contact them easily? How transparent are they with fees and rate information and do you actually understand the terms and conditions (do they pass the jargon test?)
With competitive rates and quick approval times, peer-to-peer lending is certainly an option for some, and it is making its mark in the credit industry across Australia. But as with any financial contract, a P2P loan needs to be entered into with care, and after measured decision-making.
Need to discuss your options further? Contact us, we are happy to help.