P2P Lending - Time To Torrent Some Cash?
Well, it's not that good a deal, there's no free money on offer, but there is cheap money on offer. P2P lending is the latest financing scheme to hit the market, but is it legit?
What Is P2P Lending?
Do you find yourself always the first one to volunteer to be the banker when it's Monopoly time? Well now you can be the banker IRL, thanks to P2P lending. As the name suggests, Peer-To-Peer lending is exactly that, the middleman is cut out which gives borrowers a lower interest rate on loans, while also giving lenders a higher return on their investment.
How Does P2P Lending Work?
Simple! Someone who needs a loan will go on to the P2P lending website, apply for a loan, and this application will be posted up. Lenders will then go through the latest application posts, pick which one they would like to find, and give out their cash. The borrower will then make the necessary repayments, as they would in a traditional loan situation.
What's The Catch?
For borrowers, there isn't any really. But for people wanting to lend their money, there are a couple. Firstly (In Australia) you have to be a 'Sophisticated Investor', this is a legal term, it does not depend on how snappy you dress, it actually means you have a certificate from an accountant saying that you have an income of atleast $250,000 a year, or have assets worth at least $2.5 million. The rationale behind this is that apparently if you are one of those people who have that much income or assets, you should be able to assess investment opportunities by yourself and don't need any advice from third parties.
Basically saying you're getting into this knowing the risks, and thus can only blame yourself if something goes awry.
Is P2P Worth It?
For borrowers, sure! Interest rates are lower than the banks, if you have a good credit history. There are more requirements, such as being over 21 and working full time, so if you cannot satisfy those, then a traditional bank loan may be the way to go.
Also the riskier the investors think you are, the higher the interest rate you will have to pay.
If you're an investor, these are a great opportunity to make high returns on your money, it can be quite risky, but then again, what good investment isn't risky? If you are brave enough to, you could even make huge returns, up to 30%! You make the offer to the borrowers, so if they are super risky, and no one else is offering them finance, you could get them to accept your offer at a huge interest rate. They'd have no other choice. It would probably still be cheaper for the borrower to do it this way than to go to a Payday lender or using their credit cards.
To find out more Google 'P2P Lending Australia'. There are a couple of companies starting to offer this service. Depending on how they go, more might pop up in the future.
Although you can be excused for thinking this sounds a little to close to the beginning of another global financial crisis. We've already been through Sub-Prime Mortgage disaster, why not go for some Sub-Prime Personal Loan lending and see how that turns out...
What are your thoughts on this new trend? Would you be game enough to use a service like this? Leave your thoughts below.