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Peer-to-Peer Personal Loans
Peer-to-peer lenders can offer competitive, personalised interest rates with fast applications.
Peer-to-peer (P2P) lending is also known as marketplace lending. It is when loans are financed by multiple investors. It cuts out middlemen like banks, building societies and credit unions and takes you directly to the investor. P2P loans feature access to potentially lower rates and comparatively relaxed lending criteria. Some P2P lenders even offer personal loans.
What is a P2P loan?
A P2P loan is when you borrow money from individual investors. P2P lending sites match investors to borrowers.
The “lender” acts as a facilitator for the loan and operates the online platform where the applications are made and the matching takes place. It acts as the intermediary between the borrower and investor. The lender charges fees both from the borrower and the investor.
In return for lending money, the investors may get higher returns compared to what they get from other investments. Borrowers can get lower-interest loans.
Unlike traditional lenders, P2P lending has a more flexible lending criteria. This means that lenders are more open to funding loans for borrowers with less than perfect credit scores. They do this by offering interest rates personalised to the borrower and their risk profile. Excellent credit borrowers can receive lower rates and average credit borrowers will have access to finance but at a higher interest rate.
How does P2P lending work?
P2P or marketplace lending takes place on an online platform. Loan requests are made online, and these requests may be matched to investors.
While P2P lenders match borrowers to investors, they don’t match individual lenders to individual borrowers. Most often, the investor invests in a portfolio of consumer loans facilitated by the lender.
It is basically an investment or managed fund, with the lender acting as the fund manager. Investors can choose to invest in certain types of loans, for example, personal or business loans, or they are matched to loans that meet their criteria. For instance, loans within a certain interest rate range or loan term.
P2P lending offers personalised or risk-based loans. At the time P2P lending was introduced in Australia, this form of lending was a novelty. To remain competitive, traditional lenders have responded with their own risk-based loans. They are increasingly offering more competitive rates and innovative technology.
💲 If you’re looking to borrow, you’ll first have to submit an application to the lender. The lender will evaluate your eligibility by verifying your identity, credit history, employment and financial details.
Based on your risk profile, the lender will then give you a personalised interest rate. The lower the risk of lending, the better your rate will be.
After approval, your loan will be funded by one or several investors that choose to take you on. The P2P lender will usually deduct an application fee from the amount transferred.
💵 If you’re looking to invest, you may be able to choose how your money is used. You could choose to invest in a portfolio of loans or you could fund an individual loan.
You’ll be able to review applications on the website and identify the loans you’d like to fund. You can choose to provide partial or full funding. However, you will not be able to see the borrower’s personal information.
Once you’ve agreed to fund a loan, the money will be transferred to the borrower. Repayments will be made based on how much of the loan you’ve funded.
The ins and outs of P2P loans
Government Guarantee
The Government Backed Guarantee on Deposits was set up to protect investments up to $250,000. They do not apply to funds in peer-to-peer lending as it only applies to institutions authorised by the Australian Prudential Regulation Authority (APRA).
What are the benefits and drawbacks of P2P loans?
Like all loans, P2P loans have benefits and drawbacks you need to consider.
For borrowers:
- You may be able to get a loan at a rate lower than those offered by traditional lenders.
- The application process is speedy and entirely online.
- Most lenders offer lower loan amounts than banks. It is usually up to $35,000 for a personal loan.
- The loan may come with fewer features than traditional personal loans.
For investors:
- A higher return on funds compared to other forms of investments.
- The opportunity to diversify your investments. You can also spread your funds over several loans to minimise your risks.
- There is no government-backed guarantee on the funds you invest.
- It can be a risky investment.
Which lenders offer P2P loans in Australia?
There are a number of P2P lenders in Australia. They offer their own unique product and rate. The table below is a quick guide to Australia’s P2P lending landscape:
| Peer-to-peer lender | Type of loans offered | Loan amount | Loan term | |
|---|---|---|---|---|
|
Business loans |
$100,000 up to $10,000,000 | 3 to 5 years | ||
|
Personal loans |
$5,000 to $80,000 | 3 to 7 years | ||
|
Personal loans |
$5,000 to $65,000 | 12 to 84 months | ||
|
Personal loans |
$5,000 to $50,000 | to | ||
|
Business loans |
$50,000 to $300,000 | 1 year and 5 years | ||
|
Business loans |
$30,000 to $250,000 | 1 to 5 years | ||
|
Bigstone |
Business loans |
$10,000 to $5,000,000 | 12 to 60 months | |
|
Personal loans |
$5,000 to $62,000 | 3 to 7 years |
How do I compare my options?
Whether you’re a lender or a borrower, there are a number of factors to keep in mind when comparing lenders. We’ve listed them below:
|
Compliance |
✔️ Before either borrowing or investing, you should check the credibility of the lender. |
|
|
Rates |
✔️ P2P lenders generally offer rates lower than those offered by banks. |
✔️ You should look into how the interest rate is set and who decides the rate. |
|
Fees |
✔️ Apart from paying interest, you will also have to pay fees. This can include establishment and monthly fees. These fees should be included in the comparison rate. The comparison rate is the total cost of the loan, interest and fees included. You should make yourself aware of all fees involved as this will increase the cost of the loan. |
✔️ While you’re receiving a return on investment, you will also have to pay the operator fees. You should look into whether they charge for you to invest, for handling repayments and for you to access your money early. |
|
Loan terms and amounts |
✔️ How long do you have to repay the loan? Are these terms adequate for you? You should check if you’re able to borrow for as long as you need it. |
|
|
Reputation |
✔️ The lender’s reputation should form part of your comparison. |
✔️ You should consider the lender's track record, including how it assesses borrower risk. |
|
Features |
✔️ What features are you looking for with a personal loan? Do you want a secured or unsecured loan? |
✔️ You should take the time to read the product disclosure agreement to understand what you’re getting into. |
|
Repayments |
✔️ The first thing you need to consider is whether you can afford the loan. To know this, you’ll have to look into how much your repayments cost. |
✔️ How long will it take for a return on investment? Are the terms too long for you? |
|
Requirements |
✔️ As a borrower, you will have to look into whether you’re eligible to apply for the loan. |
✔️ All lenders are required to perform background checks on borrowers. |
|
Risk |
✔️ You should look into whether the lender is too relaxed about borrower eligibility. |
Which P2P loan is the best?
There isn’t a single loan that can be considered the “best” personal loan. What’s best for one borrower may not be the best for another. The best P2P loan for you will depend on your needs and circumstances. For instance, you may prioritise some aspects of the loan, such as cost, over other aspects, such as features. In instances where your score isn’t perfect, you’ll have to look for the best loan from the options available to you.
We’ve created a list of things to consider when looking for the best personal loan:
- Does this loan fit my budget? Look at the interest rate, but also the comparison rate to determine the true cost of the loan. If it fits comfortably within your budget, the loan may be worth considering. A loan with low rates and fees would be a good find.
- Do the loan features meet my needs? Consider whether the loan is secured or unsecured. Look whether the interest is fixed or variable. Are there any other additional features? Once you understand the features, you can determine whether the loan is suitable.
- Do the loan terms meet my requirements? Is the loan term too long or too short? Will a longer term make the loan more expensive? Will you have difficulty meeting repayments if the term is too short?
- Is the loan amount enough? Does the loan amount cover your needs or will you need a larger loan?
- Can I comfortably make my repayments? Is the repayment cycle aligned with your pay cheque? Will you be left out of pocket or scrambling to make your repayments?
- Does the loan require an asset as security? Do you have an asset to offer as security? Are you comfortable with the risk of a secured loan? Would you like lower rates by offering security? If you don’t have an asset to offer, you should consider an unsecured loan.
Should I apply for a P2P loan with bad credit?
Before you apply for a loan, you need to know what your credit score is. You can get a free credit check with Finder. This will give you an idea of where you stand on the credit scale. You could have a few negative marks, but there may be a chance you’ll fall into one of the lender’s brackets.
That said, you need to thoroughly research your lenders. Some lenders offer loans based on a “best”, “good” and “average” scale. Other lenders have tiers ranging from 1 to 5. This can range from exceptional to excellent, very good, good and average.
Lenders ultimately rely on information supplied by credit reporting agencies. In Australia, there are 3 main agencies: Experian, Equifax Australia and illion. The scores can range from 0 to 1,000 for Experian and illion, and from 0 to 1,200 for Equifax Australia. Because of the difference in scales, your score could differ between credit score providers. Lenders like SocietyOne base their calculations on scores provided by Experian. If you know where you stand on Experian’s scale, and if you fall into one of the lender’s tiers, you could be eligible even if you have some negative listings.
Checking your score before applying can help you determine whether you’re eligible. If you don’t fall into the lender’s eligibility categories, you shouldn’t apply. All credit applications are listed on your credit report. If a lender rejects you, this can affect your credit score, which will make it harder to apply for credit in the future.
If you have bad credit and need a personal loan, you should work towards improving your score. Your credit score is updated every month. What you do to improve it now will have an impact in the long run. Some of the steps you can take to improve your credit score include the following:
- Paying all your bills on time
- Paying off your debt
- Lowering your credit card limit
By demonstrating that you’re willing to engage in positive credit behaviours, you can increase the lender’s confidence in you.
Why compare personal loans with Finder?
Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest. 
Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.
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Ask a question
I need to borrow $25000 to settle my separation..since my separation i took on all the family debt and in 5 yrs have paid off a 26000 personal loan and credit cards to 36000, my credit rating is below average but i only wish to borrow this money till late July 2015 4mths because i can them access my superannuation which i have $390000.
Hi Risto,
Thanks for your question.
If you would like to discuss your eligibility or options, please get in touch with a lender from the peer-to-peer loan products we have compared.
We also have a guide to bad credit personal loans that may assist you. Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you.
Cheers,
Shirley
I need to borrow around $50000 to clear credit cards and a personal loan. No-one will consider this loan because I am currently unemployed even though I am already carrying this debt and making the repayments but am trying to consolidate to lower the interest rate and make 1 payment.
Hi Jo,
Thanks for your question.
Please note that finder.com.au is an online comparison service and is not a product issuer. If you would like to discuss your eligibility or options, please get in touch with a lender featured on this page.
Cheers,
Shirley
Hello,
I am starting a new premium designer brand an clothing line. I was originally going to go to a business accountant that i know for assistance an i saw this so i thought i would just want know if yourselves could help me, an inturn help you. My venture is yet to get off the ground but is in build up phase, i would need the funds to help in start up an leases an what not. If you could crunch up some figures on the amount $1000000 over a flexible term 3 to 5years. If yourselves would consider such thing just let me know what would yourselves would think an would need to see such as business plan etc.
Thanks. IT
Hi Tobias,
Out of the P2P lenders on the page above, RateSetter is the only one that offers business finance. You’ll be offered a custom rate so this will depend on the details you give in your application. You can get in touch with RateSetter to find out more information.
I hope this helps,
Elizabeth
Hello! I’d like to know about particular which platform and investment currently has the lowest default rate.
Hi Robert,
Thank you for contacting finder.
I understand that you are inquiring about investments. The rates offered by peer-to-peer are usually lower than those offered by the banks, but you should also see whether they are fixed or variable. So generally you would be able to get a much lower rate compared to other financial institutions.
Cheers,
John