Separating fact from fiction
If you think going through the banks and non-bank lenders is the only way to get a loan, think again.
A new breed of lenders offering peer to peer (P2P) lending are starting to make their way into Australia.
P2P lenders allow borrowers to access cash faster than going through the banks.
Do I need a P2P home loan?
P2P lending or marketplace lending matches up cashed-up investors or individuals who are willing to lend to suitable borrowers via an online platform.
While it may look like an attractive option, there’s a catch.
You can only access a limited amount using peer to peer lending. This is because P2P home loans aren’t widely available in Australia yet but a P2P personal loan is.
You may only borrow the deposit which means you still need to secure the mortgage elsewhere.
So the question you need to ask yourself if you’re considering a peer to peer lending is what are you really looking for in a loan?
You may find that the features you want are also available from the mainstream lenders. This means you may not need to look for a P2P loan after all.
Therefore, you need to be clear about what you need in a mortgage and ask your mortgage broker to help you select a product that best fits your personal situation.
Are you looking for a low interest rate?
Banks don’t always advertise their lowest home loan interest rates. However, we’ve published the lowest interest rates from our panel of almost 40 lenders so you can make an informed decision.
There are also ways the bank can screw you over interest rates. Through due diligence and regularly checking your rates, you can then remain in a competitive interest rate.
While interest rates are important, you should also consider the cost of Lenders Mortgage Insurance (LMI). It is usually charged by lenders if you borrow more than 80% Loan to Value Ratio (LVR).
Do you only have a small deposit?
If you only have a 5% to 10% deposit, you can still borrow up to 90% LVR or even 95% LVR in some cases.
However, you’ll have to meet stricter requirements. This can include a clear credit history, strong income, stable employment and an easily marketable property.
Do you want a no deposit home loan instead?
Although no deposit home loans don’t exist anymore, there are ways you can get a mortgage without a deposit.
For example, with the help of a guarantor, you can borrow up to 105% of the purchase price without a deposit. You can also use equity as your deposit.
Are you looking for a home loan despite a bad credit history?
Even if you have a bad credit history, there are bad credit home loan options. As long as you don’t have multiple bad credit records or they aren’t too severe, you can get a home loan. This includes:
You can even get a bad credit commercial loan if you want to buy commercial property.
Do you want a home loan without full financial documents?
If you’re self employed or you can’t prove your income, you can take out a low doc loan. Low doc loans are designed to help people who can’t prove their income but have a deposit or equity in property.
You don’t need to prove any proof of your income but you will have to declare it. You’ll generally have to meet other requirements to qualify though.
Peer to Peer Lending: the good, the bad and the ugly
How is a P2P home loan different from a regular bank loan? What are the benefits, disadvantages and the risks of peer to peer lending? Learn about all this before you apply for finance.
The good
Peer to peer lending can offer the following benefits:
- Lower interest rates: A P2P home loan usually has a lower interest rate than that of a bank mortgage.
- Faster application process: Using peer to peer lending, you can get a loan without even having to even visit the lender. Since you’ll have access to a large network of lenders, you’re more likely to get an easier approval. This saves a lot of time and you can secure a loan much quicker than if you went with a bank.
- Fewer fees: Banks can charge application fees, processing fees and other costs when you apply for a mortgage. However, with peer to peer lending, you may only have to pay a single flat fee or a percentage of the loan.
- Return on investment: For investors, peer to peer lending offers a good return on their investment. This is because the interest rate in offer is generally more than a cash deposit rate through a building society, credit union or bank.
The bad
A major disadvantage of peer to peer lending is that it is currently quite limited in Australia. A P2P home loan is essentially non-existent and you may not be able to borrow more than $35,000 in most cases.
Right now, peer to peer lending is not a mainstream lending choice in Australia. It may take a few years for the industry to develop and P2P home loans to be on offer.
If you invest in peer to peer lending, you won’t generally make a profit unless your money is lent out. There’s no guarantee that the money will be lent straight away so you may have to wait a while.
Also, investors will not receive any government-backed guarantee on the funds they provide. In addition to that, your investment may be uninsured. By diversifying your risk with many borrowers, you can mitigate some of this risk though.
Make sure you speak with a professional financial advisor before investing in or borrowing using peer to peer lending.
The ugly
If you want a P2P home loan or to invest in peer to peer lending platforms, you’ll have to consider the following risks:
- Cyber security risk: Since peer to peer lending is mainly carried out over the internet, fraud and cyber security risk exist. Your credit information can be stolen or you may be lending to a fraudulent client.
- Operator insolvency: For investors, if the peer to peer lending platform fails, you may not be able to recover your investment completely. For borrowers, you may have to resolve your debt directly with a lender.
- Interest rate risk: As with a fixed rate home loan, if the interest rates decrease before the end of the loan term, you may not be able to switch products. Also, if rates increase, investors may not be able to move their money to a higher interest-bearing loan, and lose out on the opportunity.
How do I qualify for a Peer to Peer Home Loan?
Once available, a P2P home loan will initially target low risk loans. This means that in order to qualify, you’ll likely have to meet the following requirements:
- You aren’t borrowing more than 80% LVR.
- Your credit file is clear of any bad credit records such as defaults.
- You have a good income and stable employment. The level of income may depend on the lender you go with.
- The security property isn’t an unusual or specialised property type, and is in a good location.
We have mortgage brokers with many years of experience in the credit industry. We can help you get a P2P home loan or find out how else you can secure finance.
You can discuss your personal situation and loan needs with one of our mortgage brokers by calling us on 1300 889 743. You can also complete our free online assessment form and one of us will contact you instead.
Current Peer to Peer lending options in Australia
At the moment, there are around half a dozen lenders with peer to peer lending as their primary business.
You can’t borrow a P2P home loan but you can generally borrow up to $35,000 for up to 5 years.
If you’re investing, peer to peer lending platforms may require you to invest at least $50,000 for a minimum of three years.
You can learn more about peer to peer lending by checking out ASIC’s website.
