The Benefits of Peer to Peer Lending

In previous blog posts, we explained what Peer to Peer lending is all about and how it works. We have also explored the risks involved and sought to debunk some of the myths surrounding this relatively new investing and borrowing model. Our reviews of Peer to Peer lending have implied the many benefits that P2P has to offer. However, it is useful to explicitly state these benefits for both Lenders and Borrowers.


Benefits to Lenders


By using state of the art technology, which has been specifically designed for Peer to Peer lending and Carilend, we have much lower costs than traditional financiers. As a result, we pass on these savings in the form of better rates. Our Lenders receive better investment returns than they could earn on traditional savings accounts or comparable assets in this class.


Another important aspect of being a Lender via Carilend is that the investment is spread (or diversified) among many loans and over many Borrowers, as opposed to one amount to one Borrower.  This risk mitigation tactic means that the Lender's risk is reduced as the odds that the majority of these small debts (each of which is an investment) will default at the same time is small. For example if a Lender splits their investment into a minimum of 100 chunks (which is best practice), then a $5,000.00 investment would provide $50.00 to 100 loans. Even if 3 or 4 of these loans became delinquent, there are still 96 or 97 loans being repaid and earning interest. Indeed, the interest earned on the 96 “good loans” would, in time, cover any losses on the 4 “bad loans”. Furthermore, every Borrower will pay into the Reserve Fund, and these funds will be available to help repay Lenders in the event of default. This provides peace of mind and potential recovery of investment.


One of the features of Peer to Peer platforms, including Carilend’s, is the ability for Lenders to control and monitor their investments. Lenders will be able to pay in funds to their account at any time via a Direct Debit, eliminating the need for cash, cheques or bank drafts. Lenders will also be able to decide the level of risk they want to take with their funds and the duration that they are willing to lend for. In addition, they will have the ability to dive down into individual loans and see various loan details, such as loan amount, interest rate, how they are being repaid, etc. For confidentiality reasons, the only thing that Lenders won’t be able to see is the identity of the Borrower. All of these features provide significant autonomy for Lenders to manage their investments.


“Our Lenders receive better investment returns than they could earn on traditional savings accounts or comparable assets in this class.”


Benefits to Borrowers

Peer to Peer lending is done completely online—everything from the application to the receipt of funds directly into Borrowers’ accounts. The application process is comparatively concise and straightforward. Even the supporting documentation is uploaded online as opposed to physically bringing in realms of paper to accompany the application. We know from experience that this is a frustrating aspect of the normal loan application process, and therefore we will be improving on that process significantly.


Borrowers have access 24 hours a day, 365 days a year. This accessibility allows Borrowers to make requests and receive funds whenever it is convenient for them, as opposed to via traditional means. There is no need for Borrowers to make appointments to discuss applications, wait for approval and then wait even longer for funds. Not only is this extremely convenient, it also saves Borrowers time.


As with Lenders, the extensive use of technology also benefits Borrowers. Due to our low costs, we have relatively lower interest rates for the unsecured loans accessed through us.


Additionally, we leverage the bank to bank process of moving money so that funds are transferred safely, quickly and smoothly. Borrowed funds are deposited automatically to Borrowers’ bank accounts within days of the application being approved allowing Borrowers to have easy and convenient access to their funds. When repayments are due on the loan, the monthly payments are taken directly and automatically from the Borrower’s bank account via a Direct Debit.


General Benefits


As the name implies, Peer to Peer lending involves individuals lending to other individuals. In Carilend’s case, it is Caribbean people lending to Caribbean people in a safe, secure and privacy protected manner. This helps both Lenders and Borrowers achieve their financial goals whilst keeping the benefits in our community.


The fact that the process is paperless and uses a significant amount of technology contributes to the “green economy” and enhances the region's efforts in this regard.


Our introduction of Peer to Peer lending provides an alternative opportunity for investing and borrowing. With more options, Barbadian consumers will have the freedom to do what they want with their money and allows them to choose for themselves the best option to help them achieve their financial goals.


Carilend looks forward to not only bringing a new and improved method of investing and borrowing to Barbados, but also to improving the quality of the investing and borrowing experience.