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Peer-to-peer lending can offer a flexible alternative to traditional personal loans, but it’s important to understand how this finance model works before you apply. Join us to learn about your P2P options in Australia and what to look for in a lender to help you navigate the world of P2P loans. Â
What are peer-to-peer personal loans?
Peer-to-peer personal loans, also known as P2P or marketplace lending, are an alternative type of financing that allows the direct borrowing and lending of money between individuals. Rather than submitting your application to traditional lenders such as banks and credit unions, you apply on a specialised online lending platform that connects you with private individual lenders known as investors. These individuals will then assess your application and can choose to fund it in part or in full, earning interest on the money they lend.
As a borrower, the application process is much the same as that for a personal loan from a conventional lender. To get a P2P loan, you will need to:
- Be at least 18 years old.
- Be an Australian citizen or permanent resident living in Australia.
- Earn a steady income that meets the platform’s minimum income requirements.
- Undergo a credit check to determine your eligibility.
- Provide supporting documents such as photo ID, payslips, bank statements and utility bills.
The amounts you can apply for can range from a few thousand dollars to tens of thousands depending on the lender and your profile, but may be lower than amounts from traditional banks. Once you have received your loan, you will need to start paying it back straight away in monthly instalments that include the loan amount plus interest. You may also be required to pay certain fees, but this will vary from platform to platform.
Are peer-to-peer loans widely available in Australia?
While P2P lending is available in Australia, it is a relatively new addition to the lending landscape and is not as widespread as other types of finance like personal loans. As such, if you are looking for a P2P lender, you may find your options limited. It’s also important to note that platforms may adjust their offerings over time. For example, some might choose to exclusively focus on business loans, tailoring their services to meet the needs of small and medium-sized enterprises (SMEs). This could include offering loans for equipment purchases or business expansion for tens of thousands to millions of dollars.
Others may transition into different business models altogether. For example, some lending platforms have moved towards a warehouse method of lending. With this model, financial institutions pool their own funds to originate loans before selling them to investors. From a borrower perspective, the warehouse lending model can potentially offer access to larger loan amounts and potentially faster funding – though it may also be a less flexible application process compared to P2P lending.
How do I choose a peer-to-peer lender?
Whether you are a borrower or investor, it is important to choose a P2P lender that you can trust. Here are some key factors to look at when evaluating a platform:
- Regulatory compliance: ensure the lender has an Australian financial services (AFS) licence and is regulated by the Australian Securities and Investments Commission (ASIC). This provides a level of protection for both borrowers and investors.
- Financial stability: look at the lender’s funding sources and risk management practices.
- Borrower protection: read the terms and conditions to understand interest rates, fees and repayment options. Check if the lender offers any borrower protections or insurance.
- Security measures: it is important that the platform has security measures in place to protect your personal and financial information.
- Reputation: search online reviews to get an idea of the experiences of other borrowers and investors.
- Transparency: a reputable lender should provide clear information about its lending process.
What are the pros and cons of peer-to-peer borrowing?
As with any financial product, there are both positive and negative aspects to P2P loans. If you are looking to borrow money with a P2P loan, potential advantages include:
- Quick, easy applications: as an online service, P2P loans are easy to apply for and often quickly approved, though you may not receive the money on the same day that you get approved.
- Lower interest rates: you may get a better interest rate than you would from a traditional bank or other online lenders, especially if you have a good credit score.
- Accessibility: P2P lenders may have less stringent credit requirements than traditional lenders, allowing you to secure a loan even if you have a credit score that is less than perfect.
However, there also disadvantages to P2P lending:
- Lower lending amounts: P2P platforms usually have lower lending limits than the major banks, potentially capping out as low as $30,000.
- Limited availability: there are currently only a handful of P2P lenders on the market in Australia, limiting your options if you are looking for this type of finance.
- Consumer protection concerns: while all P2P lenders must be licensed and registered, this type of lending is less regulated than traditional banking so it is important to do their research on a lender before applying for a loan.
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Written by Fact checked
This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for personal loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
