Posted June 2016 by NZCU Baywide
Were Credit Unions the First Peer-to-Peer Lenders?
By now, you have probably heard of peer-to-peer, or P2P, lenders; platforms which match customers looking for a loan with private investors looking to lend some money. But, did you know that a different style of peer-to-peer lending has been around for much longer?
What is Peer-to-Peer lending?
Peer-to-peer lending is a pretty simple concept. You take a customer looking for a loan, and you match them up with an individual, or group of individuals, who are looking to lend some of their money as an investment. The lenders bid for the right to contribute to the loan, and the cheapest bids are pooled together to provide the customer’s finance. This is billed as creating a win-win situation: the customer gets their loan, and the investor gets in on the banks’ business of writing personal loans, all thanks to an online platform.
How does it compare to a Credit Union?
Far before the first peer-to-peer lender hit the online world, there were credit unions, which have really been in the business of peer-to-peer banking right from the beginning.
When you bank with a credit union, you are not just a customer; you are a member of the business. Your financial institution does not exist to make as much money as possible from you, rather it exists to grow alongside you and help you kick your financial goals.
When you take out a loan from a credit union, you will become a member of the institution. The deposits used to provide the funding for your loan come from other members of the same credit union. So, when you use a credit union, you are effectively borrowing from, and lending to, your peers who are members of the same institution. This form of peer-to-peer lending however, has been around far longer than the new online platforms available today.
Pros and cons of Peer-to-Peer lending
Online peer-to-peer lending has its benefits. For the borrower, you can often get a more competitive rate on your loan; and for the lender, it gives you access to a corner of the investment market traditionally reserved only for the banks.
It also has its dangers: as a lender, while you may get access to the loan market, you also have to carry the risks of the loan not being paid back, a risk not carried when you deposit your funds with your local credit union.
So, while online peer-to-peer lending and borrowing has its place in the market, the original, and still stronger and more stable, form of peer-to-peer banking remains banking with your local credit union! For more information on joining your local credit union visit www.nzcubaywide.co.nz