Understand the loan
Most loans organised by P2P lending platforms are used by borrowers to consolidate debts, to fund large purchases such as cars, or for business purposes. However, it is possible to get larger loans to buy property or refinance a mortgage.
Like a loan from a more traditional lender, borrowers pay back the amount of the loan, plus interest. However, interest rates may be lower than the rates offered by traditional lenders. This is because borrowers can get interest rates based on their personal circumstances, such as their credit rating.
Some lending platforms keep a fund of money that it can use to compensate investors who suffer losses due to borrower defaults. Borrowers may be asked to pay a fee that will be paid into that fund. The fee will depend on the creditworthiness of the borrower.
Applying for a loan
Like all credit providers who offer consumer loans, P2P lending platforms must lend responsibly.
If you are applying for a loan through a lending platform, you should expect to be asked the same questions that a traditional lender will ask to assess your suitability for the loan and your ability to repay it.
The lending platform will also check your credit report. See credit reports for more information about what's included in your credit report.
The credit provider for your loan will be either the platform operator or a custodian company that enters all loans on behalf of the platform and the investors.
If you have difficulties repaying your loan, you will be dealing with the platform operator or the custodian company, rather than the investors.
For individual borrowers (not businesses) the loan will be a consumer credit contract, so the platform operator will need to have an Local Authorized Credit Licence and comply with the National Credit Act when it sets up the loan.
-Getting your money back - Do you have any cooling off rights if you change your mind? Do you have the ability to redeem your investment and get your money back?
Before you sign up for a loan
Before you sign up for a personal loan through a P2P lending platform you should always read the information on their website and any loan documents to make sure you understand the terms and conditions of the loan.
To help you assess the loan, take a look at the comparison rate to see how much the loan is likely to cost you with the fees included. You should also check whether you will need to pay any upfront fees to set up the loan.
It's also important to shop around and compare the marketplace loan with the loans being offered by traditional lenders.