We are often asked how it is that we are able to offer investors such attractive rates.
In responding to this question, it is useful to explain what it is that we do and what is the underlying business that we operate. Carilend is a Peer to Peer Lending business, and like similar businesses around the world (e.g. ZOPA, Lending Club, RateSetter, Borrowell, etc.), we bring together people who have money to invest (Lenders) with people who want a loan (Borrowers). That, in essence, is what Peer to Peer lending is - a process of connecting Lenders and Borrowers via a safe, secure, confidential, online medium or platform.
The investors are lending their own funds (there is no middleman) so naturally, the investors get the majority of the interest which the Borrowers pay.
How the Process Works
Lenders’ money is split into small pieces and spread over many loans, which diversifies the risk for Lenders. It is best practice to diversify (or spread) the total invested amount into at least 100 pieces. Each small piece is paired with other small pieces (from other Lenders) in order to fully fund each individual loan. In other words, your funds would be lent out to at least 100 different people and paired up with other Lenders’ funds who have similar investing profiles to you to fund the total amount requested by the Borrower. The Lender chooses the total amount to invest, the maximum size of each piece and how the funds are allocated. The actual allocation of each piece to fund the loans is done automatically via Carilend’s online, secure system and does not involve manual intervention on our end.
Investors Lend so Investors Earn
From the above explanation, the investors are lending their own funds (there is no middleman) so naturally, the investors get the majority of the interest which the Borrowers pay. Loans obtained through Carilend are small, unsecured loans, and they are priced at market rates, currently between 7% and 12%. Lenders currently earn between 4.9% and 8.4%, and Carilend earns the difference as a fee for the services we provide to both Lenders and Borrowers. This also means that Carilend doesn’t make money unless the Lenders are making money and getting paid.
Part of Carilend’s role is to ensure that the loan applications are of good quality. We do this by using strict credit scoring techniques, verification of Borrower information and state-of-the-art systems to support our review of the applications. We only approve loan applications from people who are employed with their salaries paid into their bank accounts, can afford the loan, do not have any adverse credit issues and are good with their money. On top of our rigorous approval process, each Borrower pays a small percentage (typically between 1% and 5.25% of the loan amount) into a “Reserve Fund”. These funds assist in repaying the Lenders if the Borrower doesn’t repay their loan, whilst we work with Borrowers to update or recover the loan.
Carilend’s Low Costs
As a result of the significant amount of technology and automated processes used, Carilend is able to undertake this business in a very cost-effective way. We do not have large offices or large numbers of staff, and therefore, our operating cost base is relatively low. We pass these savings onto our Lenders in the way of better returns!
By becoming a Lender through Carilend, people are able to maximise their returns in an environment where savings rates and investment returns are low. We trust that our explanation has enhanced your understanding of how Peer to Peer Lending works with Carilend, and more importantly, why the returns are so good. If you would like to learn more, feel free to click here or browse our website/blog. If you are ready to start earning up to 8.4%, then sign up today and be on your way!