P2p Lending is the New Age Solution to Borrowing

By: Ivan Mantelli

Social lending is growing as a popular mainstream-lending platform. Where banks have failed - social lending hubs like Zopa & Prosper have successfully launched their lending services and are becoming effective community borrowing networks. One of the primary reasons being that banks charge a hefty interest rates on loans plus service charges, whilst online loans taken from a social lender tend to have lower interest rates.

According to recent studies, it can be seen that banks are continuously trying to push up the fees. This situation is not new to Australians where bank loans have become an expensive option. Australians are continuously looking for alternatives, which is in the form of cheaper banking solutions. According to a research-based report by Fujitsu Consulting, it appears that Australian banks charge, on an average, some of the highest fees in the world. According to this report by Fujitsu Consulting, a customer of an Australian Bank pays an average of $95.63 as monthly fee as compared to $55.67 in Britain, $71.79 in the US and $84.41 in Canada.
The current situation Australia is that banking customers are trying to put up a brave fight against those banks, which are charging them exorbitant fee. The most obvious path chosen by most Australian banking customers is closing of their account and charging a refund. A recent survey by NEWS.com.au found out that 44% of 1366 people were charged overdraft and 52% were charged penalty fee on credit cards. In such a volatile situation, Social lending hubs are being looked as a welcome break for all those who have been the victim of high interest rates for loans.

The Social Lending Wave

The social lending wave came in the form of Zopa in UK followed closely by Prosper in the US. Both social lending hubs are increasingly becoming popular due to their ability to offer easy loan terms as against banks, whose popularity has somewhat diminished. These social lending hubs have been developed with only one aim: which is to make a loan available to anyone without the all the unnecessary hassles of the bank or having a middleman in between. At the same time, it is an alternative investment vehicle. Both lenders and borrowers belong to the community. For lenders, it is an excellent investment opportunity where they can grow their money by lending it to another person at a lower interest rate than normally charged by banks.

The lower interest rate is due to the fact that there is no middleman and the best part is that both lenders and borrowers are allowed to decide upon an interest rate. Also known as peer-to-peer lending, the statistics talk loud about the success of this kind of lending platform. According to Prosper, they have been visited by people who have borrowed 15,000 loans at a net value of almost US$91.2 million. There has been a growth in the average loan amount as well, which has leaped from $6,100 to $7,000. As a result, a space or a market has been created for new players to enter and exploit the tremendous opportunities it offers.

Type of Loans Offered

Although not as comprehensive as banks yet peer to peer sites offer different types of loans. Zopa offers mostly unsecured and personal loans, the most popular being car loans. The top 6 loans at Zopa include:
&bullCar Loan
&bullPersonal Loan
&bullHome Improvement Loan
&bullConsolidation Loan
&bullShort Term Loan
&bullFlexible Loan

At Zopa, you can borrow a minimum of ?1000 and a maximum of ?15000. A typical loan request at Zopa will look like this:

Borrower: Driveaway44
Amount requested: ?8,040.00
Preferred rate: 4.5%

For example: If you want to borrow ?5,000 over 36 months then the typical fixed rate of interest would be 7.2% APR in Zopa. Apart from this, borrowers have to pay a fee of 0.5% of their total loan value.

With the lead taken by Zopa and Prosper, peer to peer lending has started to make its way to other markets like Australia and New Zealand. Lending Hub is a social lending hub that will launch in Australia in early 2008 and you can find more information at their website (http://lendinghub.com.au). PeerMint has been founded by a small team of ex-banking professionals and is aimed at being an alternative investment platform for lenders as well as a source of loans for borrowers at much more reasonable rates than the banks currently offer.

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