How to Choose the Right Peer to Peer Lender in NZ
There are many benefits to using peer-to-peer lending. Borrowers deserve to get the best deal for their needs, whether it be a loan for personal, business, home improvement, mortgage, etc.
A P2P loan has several advantages over traditional loans through a bank or credit union. One of the main ones is that it can be an unsecured loan, which means that the loan does not require collateral from the borrower. But this can make getting approved for the loan a little more time consuming.
Regardless of the reason for searching for a peer-to-peer loan, there are a few things to consider before filling out an application. Below are details about these types of loans, their advantages and risks, and advice on where to find peer-to-peer loans in New Zealand.
What is a Peer-to-Peer Loan?
Peer-to-peer loans match borrowers directly with lenders, cutting out the need for intermediary financial institutions. This type of loan is essentially a personal transaction between individuals.
When borrowers apply for a P2P loan, the lender – also known as the investor – gets to choose which loan he or she wants to fund. Lenders find out what the loans before them will be used for, so they can decide if they are interested in investing.
The Benefits of Taking Out a Peer-to-Peer Loan
There are several reasons why a borrower would want to choose peer-to-peer loans. Here are some benefits of this type of loan:
- They cut out the middle man. There is no need for a financial institution.
- P2P lending platforms must be licensed. Licensed entities means if things don’t go as planned for the loan, those involved in the process have access to free dispute resolution services.
- Potential savings. These come with lower fees throughout the life of the loan, potentially saving borrowers money in the end.
- Heavily monitored. P2P loans come with a high degree of involvement from the Financial Markets Authority.
- Unsecured loan options. Most P2P lenders fund companies and individuals they trust and connect with instead of basing the decision on collateral.
The Risks of Taking Out a Peer-to-Peer Loan
As with anything in life, taking out personal loans from P2P platforms come with certain risks. Carefully consider the following potential issues that could arise with P2P loans:
- High interest rates. While there is more freedom in deals not involving financial institutions, higher interest rates can get tacked onto a loan to protect the lender.
- Newer platforms. Many of the P2P lending platforms available to New Zealanders are fairly new, and the industry still has a lot of growing and learning to do.
- Lenders can deny funding. If your plans do not resonate with your peers, they can choose not to fund your loan, regardless of your ability to make repayment.
6 of The Best Peer-to-Peer Lenders in New Zealand
There are many P2P lenders to choose from. Take a look at the best peer-to-peer loans available to borrowers living in New Zealand.
1. Lending Crowd
Lending Crowd is a peer-to-peer online marketplace designed to match lenders with borrowers. Individuals or companies can apply for up to $200,000 from Lending Crowd for vehicle loans, personal loans, and business loans. Approvals and rates are based on the borrowers’ credit profile, in addition to other securities offered.
Interest rates and fees: Interest rates vary between 5.03% and 20.26%. A platform fee, which is adjusted based on the amount of the loan, will also be applied. This fee ranges from $200 up to $1,450.
Requirements: Applicants must be at least 18 years old, have collateral (like a car or property) to back the loan, be able to afford the loan, and show their income, assets, liability, and mortgage or rent expenses.
How to apply: Apply for a loan with Lending Crowd in as few as eight minutes. The representatives walk all applicants through the process, requesting any necessary documents needed along the way.
2. Squirrel Money
Squirrel Money is a platform dedicated to peer-to-peer lending. It serves borrowers in the homeowner niche, specifically those interested in remodeling, purchasing a home, or breaking new ground. Those who have a NZ license or passport are eligible to apply for P2P loans with Squirrel Money.
Interest rates and fees: Rates are comparable with bank rates, which are currently available for as low as 2.29% and as high as 4.59%. Establishment fees range from $0 up to $1,000, depending on the reason for the loan. There are other fees associated with dishonoring and defaulting on the loan.
Requirements: Applicants’ income and expenses are taken into consideration. Borrowers must have a source of income to demonstrate loan payback. Additionally, citizenship of or residency in New Zealand is required.
How to apply: Borrowers can fill out an application with Squirrel Money in as few as 10 minutes, or fill out a short form to request that a member of the Squirrel Money team reach out at a later time.
According to the Zagga team, this company prides itself in offering larger loan amounts in addition to its flexible criteria. Its loans can be used for personal, residential, rural, and commercial purposes. Zagga uses an assessment grading score for each applicant that is based on the information provided in his or her application. This determines the risk rate for borrowers.
Interest rates and fees: Rates currently vary from 6.34% up to 14.74%. Once the loan is released to the borrower, a platform fee (which ranges from 1% to 7% of the loan amount) is also applied.
Requirements: A borrower’s approval for a peer-to-peer loan is based on Zagga’s own alphanumeric grading system. Applicants must be 18 years old or older and hold a valid New Zealand ID.
How to apply: To apply for a loan with Zagga, register for an account, upload all pertinent information, and join the platform as a client.
PledgeMe uses a crowdfunding model, which allows individuals to launch campaigns requesting funds for their projects. PledgeMe stresses the importance of the relationship between borrowers and investors over the financial returns. The platform has funded small businesses selling books, large breweries, and anything and everything in between.
Interest rates and fees: A PledgeMe loan includes a flat rate fee of 6.5% of the entire amount. The CrowdfundingU program is a required course that teaches Kiwis how to launch a successful campaign. It has a fee of $4,000 for larger companies or a $1,500 fee for borrowers requesting less than $100,000.
Requirements: Borrowers must be able to demonstrate their ability to pay back the loans they are requesting. A Campaign Readiness Evaluation for Debt (CRED) is used to determine eligibility for borrowing.
How to apply: To raise funds with PledgeMe, select the type of campaign desired, fill out all personal information, and publish the campaign so that others can see what the funds will be used for.
5. Southern Cross Partners Limited
Southern Cross Partners Limited has helped New Zealanders with peer-to-peer lending for more than two decades. It specializes in working with borrowers who are requesting P2P loans. Borrowers desiring for short-term property lending will discover many options through this company.
Interest rates and fees: First mortgages come with an annual interest rate ranging between 7.95% and 10.95%. Other purchases range from 6.99% to 9.99%. In addition to the loan application fee of $25, other administrative fees can also be applied, depending on the type of loan.
How to apply: Fill out the ‘Get in Touch’ form to begin an application with Southern Cross Partners.
Crowdsphere is a very new platform in the P2P lending industry. Its philosophy follows that of creating a space for entrepreneurs to learn from others and find mentors, in addition to borrowing from those interested in their business ideas. Many NZ businesses have benefited from this crowdlending format.
Interest rates and fees: A pitch application fee of $5,000 is added to the loan amount, in addition to a success fee of 6% and a payment processing fee of 0.05% of the total loan.
Requirements: NZ residents who are 18 or older with a business plan and associated financial forecast can submit a pitch for a loan.
How to apply: Create a free membership account by providing contact information. Then submit a pitch about the need for a loan on Crowdsphere’s website.
What You Should Know Before Choosing a P2P Loan
There are several questions to ask when considering a peer-to-peer loan. Here are some common questions that other Kiwis have asked.
Why did Harmoney stop funding P2P loans?
Harmoney entered the lending market in 2014 as the first licensed peer-to-peer lender in NZ. While the company began as a platform for P2P loans, over time, the number of investors to back that portion of its service offerings shrunk. So Harmoney shifted with the market and sought more traditional lending opportunities, while keeping its promise to its existing P2P customers.
Is P2P lending riskier for the lender or the borrower?
P2P lending tends to be riskier for the lender. The investor takes the risk that the money he or she puts into a loan may not be paid back if a borrower defaults on the loan.
Are there better alternatives to peer-to-peer loans?
There are five types of loans to consider as alternatives to a peer-to-peer loan, including unsecured loans, secured loans, bad credit loans, car loans, and debt consolidation loans. Borrowers must choose the right personal loan that fits their current needs and will fit within their means.
How to Decide if The Pros Outweigh The Cons of P2P Borrowing
The first step in deciding if a P2P loan is worth the risk is to assess your current needs. From there, borrowers can determine what kind of loans won’t work for them, and which will. Consider the loan amounts that are available for peer-to-peer lending and decide if that works for you.
Shop around for the different rates that are offered on the various platforms, to choose the right lender for you. Compare the rates and fees, minimum requirements, and the terms set forth by each lender.
Loan decisions are not easy to make. The best way to get the right loan is by doing the research beforehand on each lender. You have to feel right about your decision to move forward with peer-to-peer loans.