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What are the risks of retail lending platforms?

retail investing

As you may already know, no investment is without risk. You should always consider your own risk appetite, and read any Product Disclosure Statement (PDS) carefully for any investment you consider.

To make life easy, we’ve compiled an overview of the risks of retail lending platforms:

No deposit guarantee 

Retail or marketplace lenders aren’t authorised deposit-taking institutions (ADIs). Therefore, your investment isn’t a deposit and doesn’t have the benefit of protection under the Financial Claims Scheme.

Borrower default

When you invest your money through a retail lender, a borrower or some of the borrowers who have been allocated your funds may delay or stop payment i.e. default. 

If your retail lender is using a provision fund model, like Plenti, you may be protected from some or all of a borrower default by the Provision Fund. 

No provision fund protection 

The retail lender you choose to invest with may or may not have a provision fund. When it does, a claim may be made on that fund in the event your funds are matched to a borrower that is late in making payments or defaults. In some instances, the fund may not cover all of the default.

Early repayment

Borrowers might repay your investment in a loan back earlier than expected. If a borrower repays their loan early you will earn interest on the amount invested only up to the date that the borrower makes payment, rather than the full term of the lending option you chose.

No withdrawal of funds until end of lending market indicative term

Due to the way lending marketplaces work, you are only able to withdraw (or reinvest) your funds at the end of the indicative term of the lending market. 

Think of it kind of like a term deposit: you don’t get to withdraw money until the term is finished.

There are some exceptions to this rule: 

  • The funds are repaid to you through scheduled payments;
  • A borrower repays the loan early; 
  • You are compensated by a provision fund or;
  • The retail lender provides early access to funds by replacing your funds with those of another investor.

Plenti offers an early access transfer feature where investors may be able to request to exit an investment before the end of its indicative term, as long as there are funds from other investors to replace your interests in that loan. 

It’s important that you read and understand the risks associated with any potential investment. If retail lending sounds right for you, find out how to get started here.  

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