What is Peer to Peer Lending?

P2P lending in Australia is described in this video.

The Aussie peer to peer lenders work is very similar and in fact some of the companies originally set up overseas are operating here already.

Basically a borrower will apply for a loan through a Peer to Peer lending website.

The loan is usually quickly approved and the funds are released.

The money borrowers get comes from a pool of investors here in Australia – often mum and dad Aussie investors.

The best part about peer to peer lending is that both the borrower and the investors can do well.

Borrowers can get money quicker at better rates while investors get paid high rates of return through structured monthly repayments.

Of course if would be pretty rough if investors lost their money just because someone didn’t make a payment.

To make it work for investors money is spread of numerous borrowers and some peer to peer lenders also have a built in contingency funds. Kind of like insurance they cover defaulters so that the investor does not have a loss.

That does not make it fool proof – investors money is not secured like money in a bank but then again neither are stocks or buying an investment property.

To get comfortable, most investors start by lending relatively small amounts and reinvest the profits.

Australia has arrived a bit late to the P2P party, but if the US and the UK are any guide borrowers and investors will benefit significantly.

If you want to compare Aussie P2P lenders we have compiled a list here.

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