Peer to peer lending in Australia explained

By Polly Fleeting ·
two people shaking hands after securing peer to peer lending loan

If you're sick of the high interest rates attached to personal loans from the major lenders in Australia, you may be interested in a different type of lending. It's called peer to peer lending or P2P for short.

The online borrowing and lending platform cuts out the middleman, AKA the banks, and allows you to borrow money directly from investors at a lower rate.

You might be thinking, "Surely it can't be all it's cracked up to be!"... And you're right. That's why we have created this quick guide to run-through what P2P is, who's it good for and what the risks are in this ever-evolving lending world.

Compare some personal loans below. 

Personal Loan Comparison Table - page last updated September 24, 2020

Search promoted personal loans below or do a full Mozo database search. Advertiser disclosure.

I want to borrow


  • 8.00% p.a.

    8.21% p.a.based on $30,000
    over 5 years

    Terms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 8.00% would cost $36,647.51 including fees.

  • 5.75% 21.99% p.a.

    6.47% 25.11% p.a.based on $30,000
    over 5 years

    Terms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 5.75% would cost $35,190.18 including fees.

  • Hot DealZERO Upfront fee until 30th September 2020^

    6.95% 19.99% p.a.

    6.95% 19.99% p.a.based on $30,000
    over 5 years

    Terms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 6.95% would cost $35,599.71 including fees.

  • 7.59% 8.89% p.a.

    12.24% 13.91% p.a.based on $30,000
    over 5 years

    Terms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 7.59% would cost $36,844.34 including fees.


What is peer to peer lending?

For borrowers, peer to peer lending acts as an affordable alternative to expensive personal bank loans, where those in need of a loan can borrow money.

For lenders with excess money, P2P offers an alternative way to invest with potentially higher returns than other fixed income investments.

Who are the Australian P2P players?

SocietyOne (Westpac has an equity stake in the platform), Wisr, Plenti, MoneyPlace and Harmoney are among the major players in the P2P Australian game. These platforms have a business model based on attracting creditworthy customers who are looking for more competitive loan rates than what traditional providers can generally offer.

How does peer-to-peer lending work?

Traditionally overseas, P2P providers match individual investors directly with potential borrowers that meet the eligibility requirements. However, Australia is a bit of a hybrid model as lenders are not matched directly with a stranger but invest into a portfolio of consumer loans.

With less overhead costs compared to the big banks, peer to peer platforms can offer borrowers more competitive rates, paid back over a set timeframe often through direct debit.

Who's P2P good for?

With the mantra of "people investing in other people", P2P platforms often attract people who are looking outside big corporations for their personal banking. 

If you're a borrower in need of some cash for your home reno or after a sweet new ride and want lower loan rates than what most banks can offer, peer to peer lending may be just down your money alley.

But it's important to search the financial market to make sure you're getting the best deal. Visit Mozo's personal loan and car loan hubs to compare the loans on offer from the major banks and credit unions as well.

What are the benefits for borrowers?

With a low interest rate and fast online application, P2P lending is pretty much a win/win situation for Aussie borrowers. SocietyOne for instance, allows you to borrow amounts from $5,000 to $50,000 over 2-5 years, with no monthly service fee or exit fee.

Here's a look at how P2P loans compare against the Big Banks and other low rate loans from Big Bank alternatives:

P2P Big Bank Mutual Alternative
Product SocietyOne Unsecured Personal Loan Westpac Unsecured Personal Loan Newcastle Permanent Unsecured Personal Loan
Loan amount $5k-50k $4k-$50k $1k-$20k
Fixed interest rate from 6.99% 11.99%
Comparison rate from 9.00%
13.15% 10.73%
Extra repayments Yes Yes Yes
Upfront fee $336 $250 $250

Rates correct as at 9 September 2020.

What are the benefits for P2P lenders?

Low operating costs, generally high yields over a short timeframe and helping others get competitive loan rates make peer to peer lending an attractive option for someone looking for new investment opportunities. While you can generally decide which loans and how much you want to invest, the interest rate for borrowers is decided by the platform.

Who can become a P2P lender? 

Peer to peer platforms like SocietyOne and MoneyPlace require you to be a "qualifying individual sophisticated investor" and to fall under that bracket you need extensive investment experience and knowledge. Alternatively investment is open to institutional investors, companies and trusts.

Whereas, Plenti offers investment options to all Australians, including retail investors and SMSFs.

How is it regulated?

Maybe the question should be is it regulated? The answer is no. Which makes it a tricky situation for potential lenders, as there is no government guarantee, just like most investments, means you're solely liable if something goes pear shaped. However, one of the options with P2P lending is diversifying your loan portfolio by spreading your investments over many loans with different risk categories.

Entering the world of peer to peer lending in Australia can result in some savvy saving on interest for borrowers, compared to your standard bank loan. But as with all new concepts, make sure you do your homework to avoid the risk of reaping!

Find more useful info on the most innovative banking go to Mozo's banking hub to see other ground-breaking financial products.

Tips for taking out a personal loan

Whether you decide to take out a personal loan through a peer to peer lender or traditional provider, here are some tips to help you find the right loan for you:

1. Check the comparison rate

When you kick off your personal loan comparison, you’ll want to ensure you’re comparing apples with apples by checking what the comparison rate is. The comparison rate has earned a reputation for displaying the ‘true’ cost of the loan, as it uses a calculation to combine the headline rate with some of the fees. While it’s a good way of quickly seeing how much the loan will cost with the upfront and ongoing fees included, keep in mind that only one scenario is used for the calculation (e.g a $30,000 loan over 5 years).

2. Watch out for hidden fees

Not all fees are included in the comparison rate, so make sure you check the fine print to ensure you know what you’re signing up for financially. One sneaky fee that you could be bitten with if you take out a fixed rate loan is a breakcost fee for paying out the loan early.

3. Look for flexible features

A personal loan that comes with great flexibility can make paying off your loan a whole lot easier. Here are some of the features that we recommend looking out for:

  • Fee free extra repayments: Imagine a year after taking out your personal loan you receive a bumper work promotion and decide to put some of your hard earned cash into your personal loan to pay it off sooner but when you go to make the payment, you discover your personal loan doesn’t allow extra repayments. That’s why it pays to check that the personal loan not only comes with an extra repayments facility but also allows you to make additional payments free of any charges.
  • Redraw facility: While we don’t recommend dipping into extra repayments made on a personal loan, as it will increase the term of your loan and the interest you pay, we’ve put a redraw facility on this list as it could come in handy down the track. Say you want to make some upgrades to your home, have sudden car expenses or a new addition to the family is on the way, a redraw facility allows you to draw on those additional or lump sum payments you’ve made.
  • Flexibility to choose your repayments: Here’s another scenario. You find a personal loan with a great interest rate, get approved and when you go to set up your payments to match your weekly pay cycle you discover the lender only allows monthly repayments. That’s another thing you should be mindful of, some personal loans don’t come with repayment flexibility, so check that the lender allows you to choose your repayment cycle either weekly, fortnightly or monthly when you sign up.

*The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

^See information about the Mozo Experts Choice Personal Loans Awards

Mozo may receive advertising fees from the financial institutions, issuers of financial or credit products and third party advice providers that are shown on this page. These fees are based on a cost per click, cost per acquisition, or a fixed fee.

Polly Fleeting
Polly Fleeting
Money writer

Polly Fleeting is a personal finance writer here at Mozo, specialising in loans and credit cards. Her work is aimed at helping people find ways to make smart product choices, reduce debt and get more for their hard-earned dollars. Polly has a degree in Journalism from the University of Technology, Sydney.