What do peer to peer and online-only lenders mean for you?

The internet has changed the way that we do many everyday things, from paying bills, connecting with friends and booking our annual holidays. It has also changed the way we bank and who we bank with. First, it was online only savings accounts and term deposits (eg. ING DIRECT, RaboBank, UBank), then came the wave of online only home loans (Loans.com.au, State Custodians, iMortgage), now personal loans are getting the online makeover.

DirectMoney, a UK-based online lender has just hit our shores offering borrowers competitive interest rates and the UK’s largest peer-to-peer platform RateSetter claims it will be shaking up savings and loans for all Australians when it launches here soon.

Among the trio of new lenders is also Australian peer-to-peer lender Society One which launched in 2011 and has loans from 9.95% (9.95% comparison).

What’s the benefit of borrowing with an online lender?

Don’t confuse the new breed of online lenders with payday or short term loan providers like Nimble, Cash Train etc, which offer smaller short term loans (and charge exorbitant interest rates).

Just like a regular bank lender, the online lenders offer unsecured personal loans which can be paid back in regular installments over a set time period, usually for a maximum of 5 years. One of the biggest differences from traditional lenders is the speed and convenience at which you can get your loan approved and the funds in your account. You submit your application 100% online and in some instances the money is in your account the same day, whereas completing paperwork and going through the banks approval processes can be a lot longer process. However, we should mention a few of the big banks offer a fast online process with the funds in your account the same day.

If you have a good credit history the rates being offered by the new online-only lenders are very competitive. Here’s a look at how they compare against the Big 4 unsecured personal loans.

Product

SocietyOne Unsecured Personal Loan

DirectMoney Personal Loan

ANZ Unsecured Personal Loan Fixed

Commonwealth Bank Unsecured Personal Loan

NAB Personal Loan (Fixed, Unsecured)

Westpac Personal Loan

Loan amount

$5k-30k

$5k-35k

$5k-$100k

$5k-50k

$5k-55k

$4k-50k

Fixed interest rate

from 9.95%

from 10.75%

13.95%

13.90%

12.99%

14.39%

Comparison rate (Based on a $10,000 loan over 3 years)

from 9.95%

from 14.4%

17.07%

17.02%

16.12%

18.24%

Extra repayments

Yes

No

Yes

Yes

Yes

Yes

Upfront fee

$0 (until 31 October 2014 then $250)

$510

$150

$150

$150

$250

Monthly fee

$0

$0

$10

$10

$10

$10

Rates correct as at 23 June 2014.

What does “rates from” mean?

Many providers of personal loans have introduced risk-based pricing. This means that rather than have a single interest rate for all applicants that meet set criteria to qualify for the loan, some providers are offering different rates depending on your credit history

So if you haven’t been very good at managing debt in the past with some providers you may be offered a different interest rate to someone that has a clean credit report. Direct Money for instance has three rate tiers: Platinum (10.75%), Gold (14.75%) and Silver (18.75%).

The upshot for borrowers

If what has happened in other bank product categories is anything to go by the introduction of online-only and peer to peer lenders is only good news for Australian borrowers. Increased competition in the savings and home loans market has led to the development of better banking products from big and small players. The Mozo Rate Chasers will be keeping an eye on how things develop in the personal loans space and will report back as soon as changes happen.

For more information on peer to peer lending in Australia read Mozo’s in-depth guide.

What do peer to peer and online-only lenders mean for you? was last modified: October 27, 2014 by Kylie Moss

Share This Post

One Comment - Write a Comment

Post Comment