Have you ever considered borrowing from a peer to peer lending platform? I’d heard about peer to peer lending some time ago. To my surprise, I found out one of my friends regularly invests his money in a peer to peer lending platform.
I’d always wondered how does peer to peer lending works, does it stack up and is it worth it.
Several months back I ended up looking around for options to restructure some debt. As I looked around I started at the normal options, credit cards, and bank loans.
Credit cards made it easy for me to transfer the debt to. It’s easy, but you are charged massive rates of interest for doing so. That’s probably why they make it easy!
Bank loans proved to be a little bit more difficult. They require lots of paperwork and process and don’t offer vastly cheaper rates of interest when compared to credit cards.
Then I looked into peer to peer lending, as a borrower. I was pleasantly surprised by my research and I’m going to tell you why.
Why was I considering peer to peer lending?
Six months ago I was crushing most of my debt.
Actually, I still am.
But I was sailing close to the wind in regard to just one of my debts.
If you’re following along with my journey you’ll know that I face a toe curling mountain of debt. I got caught up in the financial crisis of 2008 and life threw me curve ball after curve ball ever since.
In the last two or three years, I’ve been managing my finances incredibly well.
Last year was epic in terms of the control I’ve managed to maintain.
I’ve managed to regain and maintain this control by creating and maintaining a budget. I’ve got predictable income and regular payments going out to most of my debts. I work hard to cut my costs and live frugally so that I can pay as much as I can off debts with the money I have left over each month. If you want to learn how to do this check out some of these posts:
- What is a Budget Plan?
- How to Make a Budget Planner
- How a Simple Family Budget Paid Off $5000 of Debt in 6 Weeks!
I cleared all credit card debt in 2016. My credit card debt was the most crippling in terms of interest. I paid off a massive chunk of credit card debt in just six weeks when I first set up my budget. Cutting costs and maintaining healthy financial habits have helped me continue along my road to success. Creating and maintaining a budget was a life saver. You can get a copy of my 2017 budget planner spreadsheet if you sign up to my mailing list:
But I had just one debt which was in dispute. It is one of my largest debts. The debt was to a firm of lawyers who have overcharged me for some work. The overcharge is a substantial amount.
I contested the bill and made a complaint the Law Society hoping they could independently evaluate the file and assess if the fees were reasonable. But, the firm of lawyers has been ridiculously aggressive in attempting to recoup the full amount of what they think is owed, regardless of my complaint.
As you’d expect, they also know how to navigate the legal system to apply pressure. Last year, the firm unscrupulously managed to obtain a summary judgment for the full amount plus costs and interest.
It amounted to $70,000!
I was not made aware of the hearing date both by the lawyers, nor the court. They had “failed” to serve documents on me, as they should have. The court office just messed up and outright admitted they forgot to send me notification of the hearing. At least they were honest about it!
Opening my postbox that day to find a sealed judgment for $70,000 shook me to my core!
I knew what they intended to do next. Earlier they had threatened me with bankruptcy and this gave them an open door to do so within a matter of weeks.
I thought I had arrived at the point where I would have to find the funds.
Bankruptcy, for me, would be the easy way out, the last resort after!
But, I’m an entrepreneur at heart and I wasn’t going to go out like that. I dream of getting back to being self-employed and being bankrupt would prevent me from doing that.
I knew I could get myself out of this hole. I had no time to waste! I needed to do two things.
Firstly, find a way to correct the judgment. Court process had been broken and that wasn’t fair!
I did, and I’ll give you an update on that right at the end.
The second thing I needed to do was to find a way to raise the money and fast.
The peer to peer lending platform
Credit cards were too expensive, bank loans took too long. I figured I was unlikely to be successful with a bank loan in my predicament. I have no savings. I had paid off my credit cards so there was some cash there if I needed it but I’ve learned that using credit cards to pay off debt would cripple me fast. I promised myself last year I’d never let a credit card build up like that again.
I could have borrowed on a card and found a 0% interest-free deal for 12 months, but the kind of money we’re talking about wouldn’t get paid off in that time.
Either way, I didn’t have the capacity on all my cards to borrow against the total amount.
I was up against a wall and I needed to think of a way to get access to some funds quickly. These funds needed to be as low as I could possibly get in interest. I would be paying them off for some time. I didn’t want to be drowning in interest for years on end. I wanted my life back!
My first port of call was a loan at a bank. Interest rates with the bank were close to 15%. My credit card only charged 19%!
These were not ideal rates for a debt I’d probably end up paying off for the next three to five years.
My next step was to consider peer to peer lending.
I’d often wondered how peer to peer lending worked. I’d never ever actually looked into it.
That was about to change!
I found three peer to peer lending platforms here in New Zealand and the more I read on each the more I was impressed by the whole set-up.
How does peer to peer lending work?
Peer to peer lending is simply a marketplace where normal people like you and me (well, not necessarily me right now), lend money to people like you and me.
Think about it for a second:
If you have $20,000 sat in a bank account, you’d be lucky to be getting 3.5% per annum in interest from a good savings account; at least where I live.
If you live in the UK you’ll get a lot less than that, most bank accounts don’t pay interest there at the moment. I have no idea what you’d get if you live in the USA or Canada, but I’m sure it’s probably not much.
Then you have people who need a loan. People like me.
People looking to borrow are facing the prospect of paying 15% for a secured loan, more on an unsecured loan or using credit card debt at say 19% up to 25% and sometimes more.
You have two people looking for a better deal at both ends.
Put those two people together and you have a peer to peer lending network.
What are the benefits of peer to peer lending?
It’s a win-win as far as I can see. For the lender, yes there’s a risk. There is no investment that doesn’t carry risk!
But each of the peer to peer lending platforms I looked at offered credit checks on borrowers and offered some protection in case a lender defaulted.
The protection may not cover all the amount but it was at least something.
The lender would generally be looking at 8% to 12% of interest.
That’s roughly upwards of 5% more than I’d get on any standard or term savings account!
The borrower would be paying around 9% to 14%.
That’s about 5% lower than I’d be paying any bank!
How much interest you pay as a borrower depends on the amount you want to borrow, the term, your credit worthiness, your income and if you have any securities such as a car or home.
I’m reasonably lucky. I earn a good, stable income. I own a car that I could secure a loan against and I own a property, albeit I couldn’t secure a loan against the home right now.
Obtaining a quote online through peer to peer lending platforms took me just a few minutes!
Yes, I said minutes!
I completed a basic application for the amount I needed. Then I entered some high-level details about myself and my job. Then I was given a quote which gave a preliminary offer of a loan at a given rate.
I was offered 9.2%.
That was an incredible rate in comparison to what was out there!
The repayments, however, were a little shocking and were beyond what I could afford simply because of the amount and the term. That ultimately was because I’d set the options to try to pay the loan off within 2-3 years.
The peer to peer lending platform when from strength to strength, allow me to tweak the figures I had put into the form.
I adjusted the term and the amount and saw updates in real time to be able to find a figure that suited me and my budget. By having my weekly budget close to hand I could see how the borrowing affected me over the course of several years and had a clear idea what I could commit to in terms of repayments.
I only needed to click a submit button and I would be contacted by a representative who would request confirmation of my ID and some additional proof to support my application.
My loan request in the meantime would be pushed out to the peer to peer lending marketplace where multiple lenders could choose to lend me the full amount or partial amounts in order to spread their risk across multiple borrowers.
I opted not to continue but I received a follow-up call from one of the platforms the following day.
That was impressive, and more so because it wasn’t a pushy phone call at all!
It was a simple phone call to say hello and tell me a little bit more about how things worked before being asked if I needed any help or had any questions. I learned that loan funds were often in someone’s bank account within 5 working days from the moment a borrower was approved.
The beauty of it was that a loan of $70,000 didn’t need to come from one single lender. It could come from lenders all providing me with $1000. The lender could choose who to lend money to based on the information they receive. In this respect, lenders can make their own determination of risks based on who they are lending too and what the loan is for.
This is why I see a peer to peer lending platform as being one opportunity for you to place a percentage of your investments in if you have money to invest. And you don’t need a great deal to be able to invest. If you have $1,000 sat earning 3% in a savings account and you have the appetite to earn 9% you can start with that!
A borrower is required to provide proof to support their application. This includes proof of income, proof of assets and all the information needed to support or secure the loan. As this is happening your request is pushed out to lenders who offer to commit the funds. Once your application is complete the offer is finalized and the money is transferred to your account. As I said if you can get the information to the peer to peer lending platform quickly the money is generally in your account within 5 days of you starting your application!
I was impressed. It was definitely an option I was willing to pursue.
But, I knew that I was going to fight against the debt with all I had. I had been overcharged and I could prove it.
Peer to peer lending is definitely going to be my first port of call if things don’t swing my way in the future. But for now, I’m winning my fight. You’re probably a little bit curious about how the situation.
How did I get on with those lawyers?
Well, just last week I managed, six months after summary judgment was awarded to the lawyers, to have the judgment set aside. I had a hearing set down before the court to argue it should be set aside and the day prior to the hearing the lawyers acknowledged that they were unlikely to succeed in defending it. They put me through 6 months of stress and paperwork, however, leaving it to the eleventh hour. A tactic for sure! For that, I received some level of costs. My complaint that was under appeal was also assessed by the independent body. They have acknowledged the original complaint was not adequately handled and have sent it back directing that a costs assessor needs to review the file and the fees. It seems almost unbelievable that the Law Society never even requested the file and therefore could not have reviewed it before determining that they believed the fees were warranted!
My original complaint that found in favor of the lawyers and I appealed also assessed by the independent legal body. They acknowledged the original complaint was not adequately handled and have directed that a costs assessor needs to review the file and the fees. It seems almost unbelievable that the Law Society never even requested the file and therefore could not have reviewed it before determining that they believed the fees were warranted!
It just goes to show, some things are worth fighting for!