Monday moneyvator: Discover how peer to peer platforms could save you big time

Monday moneyvator: Discover how peer to peer platforms could save you big time

Chances are, since you’re reading this blog you’ve probably heard of the innovative movement of peer to peer or P2P for short. It’s got you intrigued but you’re not quite sure if it’s for you.

Removing the middleman and dealing directly with a stranger when it comes to everything from taking out a loan to sending money overseas might have you wondering what’s actually involved.

Well, after writing many a blog/guide/article about the concept of peers dealing directly with peers, I’m here to run you through how it works, as well as how P2P can save you money.

Peer to peer personal loans

How does it work?

When you need to update your kitchen or purchase a new car, if you’re like many Aussies in the past you probably went straight to your bank. You’ve banked with them before and they know your details – so it’s a hassle free process right? Well, what you’ve probably learned since then is that the fees and rates attached to borrowing from a bank, aren’t so competitive.

That’s where peer to peer lenders come in. These platforms have recruited the help of a whole bunch of investors (sometimes retail investors, sometimes individuals) that offer to provide funds to borrowers like you, with a much lower interest rate attached than what you’d generally receive from a bank. The investor gets the benefit of a decent return on their money, through the interest you pay and you get to save some significant coin due to the lower interest rate.

How much coin can I save?

Let this scenario speak for itself:

At the time of writing, peer to peer lender SocietyOne was offering a rate of just 8.15% if you have a good credit rating. Comparing this to a rate offered by one of the big banks of 13.90%, a borrower looking to borrow $20,000 would save $3,442 over a 5 year period. That’s nearly 20% of the amount you originally borrowed that you’ll pay in interest!

Peer to peer overseas money transfers

Perhaps you’re not looking to borrow money but to send some cash overseas to a loved one back home or for a work trip you’re about to embark on. Well, then you might be happy to hear that there’s also the option of transferring your money through an FX peer to peer provider.

Traditionally, these platforms use a concept called “member matching”, which means they find a person in the country you’re looking to transfer money that is sending a similar amount and match your transfers. While the platform charges a fee for providing the service you’ll generally receive the ‘real’ exchange rate (or close to it) as the provider doesn’t apply a margin. And some P2P providers like TransferWise, will transfer your money even if they can’t find a match, as they purchase currencies themselves.

How much coin can I save?

When it comes to international money transfers, it’s all about the exchange rate. So let’s compare the exchange rate offered at the time of writing for transferring $10,000AUD to USD.

Provider Exchange rate Fee Money in receiving bank account
CurrencyFair $0.7638 USD $4 online or over the phone $7,635 USD
Big bank provider $0.7253 USD $22 online or $30 in person $7,237 USD

Data correct as at 15/07/2016

As the table above shows the difference between transferring with a big bank provider and a P2P provider can be significant, with that specific scenario showing a difference of $398 USD in the receiver’s bank account – and that’s not even factoring in the extra fees.

See why peer to peer platforms can save you money?

Monday moneyvator: Discover how peer to peer platforms could save you big time was last modified: July 18, 2016 by Rebeccah Elley

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