Peer to Peer Lending – also known as crowd-lending. On the name implies is a financial platform peers borrowing money to their peers.
Hence, customers who get the money will make repayments to the lenders with interests.
P2P systems offers more return on customers’ money rather than banks and/or other financial situations, but this may include some risks, too.
There are some popular and experienced Peer to Peer Lending platforms such as Squirrel Money, Harmony and Lending Crowd with different annul percentages in NZ. All these companies are listed P2P Lending platforms because they are all approved by the Financial Markets Authority in New Zealand.
Working Principle of Peer to Peer Lending
The main purpose of P2P Lending is to provide loans with low interest rates to Kiwis by other Kiwis who have savings mainly as cash money. At this point, P2P Lending platforms step in by saying that lenders can get return of their investments ranges from 8% to 12% annul, while borrowers can obtain a loan with low interest rates rather than banks.
What Makes P2P Different From Other Financial Companies?
The difference between Peer to Peer Lending and banks and/or financial companies is coming from the fact that if the borrower do not repay, lenders’ investments reduce. Therefore, P2P platforms are creating their own credit application criteria to minimize risk for the lenders. To illustrate, affordability test and credit checks by third-party agencies are two of these criteria.
In general, investor for a P2P Lending, if he/she is really debt free and want to get higher return rather than banks, investor probably winning more return with higher rates, but certainly this is not guaranteed due to dependency on borrowers repayment.
Some Important Facts About to Peer to Peer Lending
- Lenders’ investment may not reach to borrower immediately which leads to delay in earning from interest rate for some time.
- Check whether P2P Lending has a secured system or not.
- Withdrawing money early may not be possible so that check loan terms.
- Be careful with the taxes from your returns.
- Huge loan capacity, reliability and being in a better financial position for a P2P Lending platform is the key point to invest money.
- Learn features of P2P Lending platforms as an investor and as a borrower.
Major P2P Lending Platforms in New Zealand:
- Harmony
Harmony P2P Lending platform is working actively almost 20000 lenders today with current interest rates approximately 13%. This makes the platform pioneer in NZ. It has a loan protection feature with an additional fee. Also, fee is currently $500. Moreover, $700M has been lent so far. Maximum and minimum lent amount is $3000 and $70000, respectively.
- Squirrel Money
Squirrel Money is known as the second largest P2P with fixed returns in NZ. Loan protection method is provided by Loan Shield which is used to ensure lender investment properly.
Current rates: 7.89% (2-year rate), 8.89% (5-year rate) after fees but before income tax.
Fee: Up to 3% p.a. of the loan balance
Early withdraw: Yes, with a fee of 1% of the loan balance fee
Minimum and maximum investment in platform: $500 to $2M
Money lent so far: approximately $20M
Active Lender numbers: approximately 1000
- Lending Crowd P2P Lending
Actively lender numbers are about 1000 with an earning rates between 5% to 14% per annul after fees. Unfortunately, it has no early withdrawing opportunity. Also, loan protection is not offered by the platform.
Minimum investment in platform: $50
Money lent so far: ~$10M