You may sometimes hear retail lending platforms being called ‘peer lending platforms’ or ‘peer-to-peer lending’. This is because you are investing in your fellow Aussies and providing the funds they need for their big life events and major purchases. The exact loan purposes will vary between each lender but they can include purchases such as vehicles, home repairs, education, or medical costs.
Rest assured, retail lenders follow all the same responsible lending practices that a traditional lender would. They will always check a borrower’s credit, including their credit history, employment status and credit score. Essentially, the retail lending platform does all the hard work to make sure your investment is protected and you can just reap the rewards.
On top of all the checks completed to protect your investment, some retail lenders like Plenti also offer the additional protection of a provision fund. This fund does not guarantee investors will not suffer losses but provides an extra layer of security.
It’s important to remember that no investment is without risk. As you are essentially lending funds to everyday borrowers, if those borrowers miss or stop payment (i.e. default on the loan) your investment may be affected. This is where a provision fund may be helpful and offer some protection. You can read more about the risks of retail lending here.