Which Institutions Provide Peer-to-Peer Lending in Australia?

If you're looking to borrow from a non-traditional lender, a peer-to-peer provider might be the personal loan choice for you. If the idea of peer-to-peer (P2P) lending has sparked your interest, you might have a lot of questions about it.

So, what exactly is peer-to-peer lending, and is it the right option for you? Let’s answer some of your budding peer-to-peer questions to help you decide:

What is peer-to-peer lending?

Peer-to-peer lending is essentially what happens when you remove banks from the borrowing equation and connect investors directly with borrowers. 

According to the peer-to-peer movement, they tend to offer more competitive personal loan deals with lower rates and fees.

Understanding the ‘peer-to-peer’ concept:

Peer-to-peer platforms aren't just limited to the personal loan world. The peer-to-peer lending concept applies to a whole heap of different services, including car-sharing (think Uber), house swaps, clothes swaps and more.

A well-known example is the house-swapping platform Airbnb, which lets homeowners rent out their property to holiday-goers for a short stint. The homeowner gets some extra cash and the holiday-goer benefits from cheaper accommodation.

Traditional peer-to-peer lending and borrowing works in the same way, as an individual investor uses the P2P lending platform to loan money directly to a borrower. 

The investor benefits from earning a profit through interest charges whilst the borrower receives a more competitive rate, lower fees, and often a faster approval process than those by the big banks.

Who offers peer-to-peer loans in Australia?

While peer-to-peer lending is still relatively new in Australia, more and more options continue to pop up.

Here are some of the more prominent peer-to-peer lenders in Australia:

• SocietyOne: Launched in Australia back in 2011, SocietyOne has a slightly different lending model than the traditional peer-to-peer platforms overseas. Instead of connecting individual investors with strangers, the platform connects wholesale investors with borrowers. 

• Plenti: Originating in the UK, Plenti hit Australian shores in 2014 and was the first peer-to-peer platform to offer investment opportunities to everyday Aussies. It’s also known for introducing the concept of a provision fund, aimed at protecting lenders if the borrower defaults on the personal loan.

• MoneyPlace: Newer to the Australian market is Melbourne start-up MoneyPlace. Like SocietyOne and Plenti, this P2P provider offers competitive rates to creditworthy borrowers. In 2015, MoneyPlace entered into a five-year $60 million strategic partnership with Auswide Bank, which will support the P2P lender during its initial growth stage.

You can compare peer-to-peer providers side by side in the comparison table at the top of this page by interest rate, comparison rate (this rate factors in the main interest rate plus any other fees) and features.

Why do peer-to-peer lenders have competitive rates?

By removing the banks from the borrowing equation, peer-to-peer lenders have vastly lower overhead costs, as they don't have to pay dividends back to shareholders. 

They’re also run entirely online, so peer-to-peer lenders don't have branch or manager costs. Cutting all of these extra cost cuts translates into savings for borrowers.

Note: Peer-to-peer loans do tend to come with other fees, though, so remember to do your research first to determine whether the loan suits your lifestyle.

What's the difference between a peer-to-peer lender and a credit union?

Credit unions are generally completely customer-owned and run by the philosophy of passing profits back to customers, not to shareholders.

While peer-to-peer lenders and credit unions share a few similarities, there is a distinct difference between the two. Credit unions don't offer the option of becoming an investor like peer-to-peer lenders do.

As a borrower, your experience should be more or less the same whether you opt for a P2P lender or credit union. You apply for the personal loan, and once approved, you pay it back in set instalments over an agreed timeframe (usually between 1 and 5 years), plus interest and any fees.

If you're trying to choose between a P2P lender or a credit union, go with whichever is best suited to your financial situation and can give you the best deal.

Am I eligible for a peer-to-peer loan?

Like with any financial service, each peer-to-peer lender will have their own set of loan conditions, which you’ll need to meet to be eligible for the loan. The most common requirement will likely be that you’re over 18 years old and are an Australian resident. 

Your credit score can determine your interest rate:

Be aware that if you have a poor credit rating, you'll have to pay more in interest, as peer-to-peer lenders generally use a tier-based pricing system and reserve their best interest rates for borrowers with excellent credit.

Example: For instance, Plenti’s unsecured personal loan offers a variable rate starting at 7.99% p.a. to 8.99% p.a. (7.99% p.a. to 10.65% p.a. comparison rate*) for borrowers with “excellent” credit. The same loan for borrowers with “good” credit on that tiered system has a variable rate starting at 12.49% p.a. to 14.99% p.a. (14.19% p.a. to 16.71% p.a. comparison rate*). 

Likewise, with SocietyOne’s unsecured personal loan, fixed rates on offer start at Tier 1 Credit at 9.20% p.a. to 14.19% p.a. (9.20% p.a. to 17.42% p.a. comparison rate*). The same rate for Tier 4 Credit sits at 20.39% p.a. to 22.89% p.a. (23.75% p.a. to 26.31% p.a. comparison rate*).

Is a peer-to-peer loan right for me?

Depending on your specific financial situation, a peer-to-peer loan might be suited to the following borrowers:

• Borrowers with a good credit score: If you're a creditworthy borrower looking for a loan under $35,000 with a 1 to 5-year loan term, then a peer-to-peer loan might be for you. Peer-to-peer providers generally have smaller borrowing amounts and shorter timeframes than the major banks, which can lend up to $100,000+ and have longer loan terms.

• Borrowers with no security assets: Most peer-to-peer loans are unsecured, so it might suit borrowers who don't have a car, house or other asset to secure a loan with. 

• Borrowers on a strict budget: Peer-to-peer lenders typically offer fixed interest rates, which can be useful if you're on a strict budget as you can lock your rate in for the life of the loan.

Not sure whether a peer-to-peer loan is right for you? You can compare other personal loan options here to find one that better suits your needs.

Features to look for in a peer-to-peer loan

As with any other personal loan, it's good to look for a loan with flexible features to suit your specific needs. Here are some peer-to-peer loan features to keep an eye out for:

• Extra repayments facility: If you come into some extra money, you might want to make extra repayments on your loan – so it’s good to look for one that allows extra repayments. A little extra can go a long way and save you a bunch of interest over time. Say you take out a $30,000 loan with a 5-year loan term and a 9% interest rate. If you make an extra repayment of $200 each month, you’ll save $2,187 in interest and cut 1 year and 5 months off your loan term.

• Redraw facility: While paying off your loan early is a great goal to have, sometimes unexpected bills and expenses pop up. If you suddenly need some extra money, you might want to dip into that pool of extra loan repayments you’ve made. If so, you’ll want to look for a loan that offers a redraw facility. 

• Flexible repayment frequency: Another feature that can help you pay down your loan sooner is setting up your repayments over a fortnightly cycle rather than monthly. With 26 fortnights in the year compared to 12 months, you’ll pay an extra month off every year of the loan's life. For example, if your fortnightly repayments are $500, you’ll pay off $13,000 in a year, whereas monthly repayments of $1,000 would result in an annual repayment of $12,000.

Does a peer-to-peer provider sound like the right match for your borrowing needs? Some great options are compared at the top of the page to start your search. Alternatively, use our personal loan comparison tool to search Mozo's database, which covers over 100 loans in the market today.