What is peer-to-peer or marketplace lending?
Are you sick of the high interest rates that come with personal loans or business loans from major lenders? Well, fear not. A new trend called peer to peer lending, or P2P, or marketplace lending may be of interest to you. It’s quite popular around the world, however, has been in Australia only for a few years now.
This method lets you borrow money directly from the investors and that all at a lower rate. This eliminates the need for banks or credit card or finance companies to get involved.
So, how does it work and what are the benefits? Read below to find out:
What is peer to peer or marketplace lending?
For borrowers, peer-to-peer or marketplace lending acts as an inexpensive and flexible alternative to costly personal loans, business loans from banks, or non-bank financial companies.
Peer-to-peer or marketplace lending is an affordable alternative to expensive bank or non-bank financial company loans. For lenders looking for better returns than term deposits, this method offers them a way to invest with higher returns, typically greater than 3-4% more than a term deposit.
How does Peer-to-Peer or marketplace lending work?
It’s quite straightforward. A borrower puts a loan listing in the marketplace, the borrower can set the term, tell the investors why they should invest and the auction begins. It’s like eBay for finance, and investors bid on the listing up to an interest rate cap to purchase a fraction of the loan. When there are sufficient bids to cover 100% of the loan listing, the loan is settled.
Compared to a big bank or non-bank financial company, Peer-to-Peer or marketplace lending comes with less overall costs, more flexibility and transparency. Finally, it is also very easy, this whole process can be completed in as little as a few hours, and the money is advanced.
What are the benefits for borrowers?
With a simple application that can be filled online and a low interest rate at hand, peer to peer lending, marketplace lending or P2P lending as it is colloquially called, is a great solution for Australian borrowers. You can borrow from $10000 and upwards, even A$5,000,000 if you have the right credentials. There are no hidden fees and it is very quick. Think about it, a business loan advance in one day at a rate lower than bank rates, isn’t this great?
What are the benefits for peer to peer or marketplace lenders?
Not only is peer to peer or marketplace lending great for borrowers, lenders benefit significantly from it too. With features like low operating costs, high yields over a short time, and an easy way to exit the investment make it the new way to invest. Why should the bank get the return on loans and give you a paltry return on your deposit? Here is a question: do you know where your money is used when you deposit money in the bank? NO
With peer to peer lending, or marketplace lending, you DO. You can see where you invest and what the returns are in real time.
If you think back to how lending began, it was people lending to other people. All that has changed here is that the advent of the internet has enabled peers to lend to people without having to know them personally.