Peer-to-peer (P2P) lending is unique in the sense that it's not a large bank or private organization that is providing the loan to the customer but rather a willing investor who aims to see a return on the money invested.
In this sense a peer-to-peer lender acts merely as a facilitator who matches people who want to invest with people who want to borrow. Peer-to-peer lending makes use of online platforms that take heavy operating expenses out of the equation and can therefore offer both investors and borrowers major benefits. While investors can secure larger returns on their investments borrowers can secure lower rate loans and save money.
A Brief History and Analysis of P2P Lending
The concept of peer-to-peer lending originated in 2005 in the UK and thereafter spread to the US in 2007. In September of 2014 New Zealand's first peer-to-peer lender Harmony was founded and had since expanded to facilitate millions of dollars in loans.
Although the peer-to-peer lending market has expanded since the launch of Harmoney, there are still very few players in the market relative to other forms of lending and this means there is still a gap in the market for new entrants.
While there are currently 5 P2P lenders in New Zealand they are not necessarily competing for the same customer since they are independently focusing on their own market segment - from first time mortgages to personal loans and car finance each P2P lender has their own primary focus. This benefits customers as they can choose to select the platform that offers them the best deal for their particular needs.
Benefits of a P2P Loan
- Since a P2P lenders operates online there are no office visits necessary and you can access credit 100% online
- Since loans are processed online you can get your loan in 24 hours or less
- Lower rates on loans for borrowers
- Fewer fees charged on loans
- Access larger personal loans without security
- Offer both personal and business loans at competitive rates
Types of P2P Loans
Peer-to-Peer lenders can offer you both personal and business loans which range in the same amount as most brick and mortar lenders and other alternative or online lenders. People looking to consolidate their debts can use a P2P platform to get a very competitive loan without having to dedicate time to standing in a queue at a bank or filling in loads of forms and paperwork.
With a peer-to-peer lender all you need to do is fill in the online loan application form and upload our supporting documents. It is important to note that a peer-to-peer lender will not necessarily work with you if you have bad credit.
As they have very minimal interaction with you it is many times the case that people with bad credit or who don’t have sufficient income will be denied a loan. This is to minimize the risk to investors and to ensure they maintain responsible borrowing practices which are just as important as with regular store front lenders.
Do I Qualify for a Peer-to-Peer Loan?
With only a handful of P2P lenders in NZ, it's not difficult to review your options. P2P lenders will generally have the same requirements as most other competitive lenders and will require that you have a good to fair credit history in order to approve your loan.
Some lenders may even choose to look past a bad credit history if you are able to provide a good reason and motivation to back up your application however, typically a P2P lender will require the following in order to approve your application:
- You must be aged 18 or over
- You must be a citizen or a resident of NZ
- You must be able to provide your bank statements to prove your income
- You may not be bankrupt, under review or have a negative credit history
- You must be employed or self employed and earn a stable income
- You must be able to provide a photo ID
- You must have an active bank account
These requirements are very basic and are considered to be quite standard in the financial and lending industry. Whether you need a debt consolidation loans, a car loan or a business loan using a peer-to-peer lending platform will likely help you find a low rate loan that meets your needs.
With only a few lenders in the market it may be best to search for lenders based on the type of loans they specialize in as this will ensure that you find the best fit from the word go. Whether your new to Peer-to-peer lending and would like to try this fantastic alternative to traditional loans from banks out or are looking for your second P2P loan - you're likely to find something that fits your budget, needs and lifestyle just right.
Comparing Peer-to-peer Loans
Once again, it's important to note that although P2P lenders offer some of the best rates on the NZ financial market the interest rate that you'll be offered on your loan will be based on your credit score more often than not.
This means that even though you may be able to secure a P2P loan with bad credit by explaining away any stains you may not necessarily get the advertised rate or the best rate. You could choose to make two separate applications for credit to find the best rates but, it's best to use the lenders APR as a guide and then choose the most appropriate platform based on what your needs are and on the type of loans that the lender specializes in.
Peer-to-peer lending - In Conclusion
In conclusion, peer-to-peer lending may be a new concept to Kiwis but, it's certainly catching up o other forms of lending and is showing no signs of slowing down.
With competitive interest rates and somewhat more flexible lending criteria's P2P loans have a range of benefits that outweigh those offered by traditional banks in many instances. Whether you want to buy new furniture for your home or consolidate your debts - a P2P loan may be the easiest and cheapest way to do it.